Can I Change My Beneficiary Without a Penalty in a Traditional IRA?

Your IRA beneficiary will get whatever's left in your account when you die. Images

A traditional individual retirement account provides tax benefits to help you build up your retirement nest egg. If you don't drain your account after you retire, whatever's left passes to a beneficiary of your choosing. Since you always maintain sole control over your IRA, you can change your beneficiary whenever you want. You won't face a penalty, but your choice could have consequences. In some cases, there might be a restriction on your beneficiary choice.

Community Property States

In most states, you can choose any IRA beneficiary you'd like. However, in the nine community-property states, you have to select your spouse as your heir. To name anyone else, your spouse will have to provide written permission. The same applies if you wish to change your beneficiary designation. As of 2013, the nine states operating under community-property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.


You can have more than one IRA beneficiary. If you choose multiple heirs, you'll have to designate a percentage amount each beneficiary will receive. While the percentages must add up to 100, they don't have to be equal. For example, you can allocate 10 percent to one beneficiary, 20 percent to another and 70 percent to the third. You're free to change these percentages at any time or to add or drop as many beneficiaries as you would like. The only requirement is that you have to make your changes in writing with the company that maintains your IRA.

Contingent Beneficiaries

Contingent beneficiaries are secondary heirs for your IRA. They are not entitled to any share of your account unless your primary beneficiaries die before them. In that event, your contingent beneficiaries are first in line. As with primary beneficiaries, you can add or change contingent beneficiaries at any time, and you can allocate any percentage you'd like to them. If you don't name any secondary beneficiaries, your estate becomes your sole heir if your primary beneficiaries pass.


Once you reach age 70 1/2, the Internal Revenue Service requires you to take money out of your IRA every year. The minimum amount you have to withdraw is based on your life expectancy and the value of your IRA. Before Jan. 1, 2001, your payout was based on a combination of your life expectancy and that of your beneficiary. As a result, changing your beneficiary had more far-reaching consequences. With the new rules, you have added flexibility in changing a beneficiary since it doesn't affect your distributions.