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When you name multiple primary beneficiaries of a 401k, the assets can be divided proportionally among the beneficiaries, but the contingent beneficiaries don't kick in unless all primary beneficiaries predecease the account owner.

Is it possible to set it up so that the assets assigned to a predeceased beneficiary pass through to their (possibly minor) children?

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    The legal term is per stirpes which means that if a beneficiary predeceases the 401(k) owner, then the beneficiary's descendants (note the exclusion of spouse of beneficiary) inherit the beneficiary\s share in equal proportions. Whether the 401(k) plan allows for such beneficiary designations is a matter to be taken up with the plan administrator. Per stirpes designations nare a big headache for the plan administrator, so so be prepared for a flat No to your query.
    – Dilip Sarwate
    Mar 5, 2021 at 5:18

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One way to do this is to set up a trust, and then have the 401(k) beneficiary be the trust. You would have to make sure that the 401(k) administrator allows the beneficiary to be a trust.

Setting up the trust costs money, but one advantage of the trust is that you could have more complex rules in place beyond those offered by a 401(k). You would have to keep the rules of the trust updated to cover any changes in the family tree.

Most (all ?) 401(k) programs allow the employee to modify the list of beneficiaries at almost any time though an online interface. I don't think that you can modify the percentages in the trust documents quite as easily.

A big issue in family law is the case where the person doesn't update the beneficiary list even after divorces and remarriages. Setting up a trust and then neglecting to update it would face the same issues.

Remember that 401(k) and other retirement funds require additional paperwork to skip the spouse of the employee.

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    We are getting into legal issues here, but I will say that one should be leery of making a trust as the beneficiary of a 401(k) plan. The standard practice is that the trust recceives the 401(k) assets as a lump sum and the trust is liable for income tax on the sum received unless the trust promptly passes on the amount to the beneficiaries who then have to pay tax on the proceeds (Allin he same year) unless the trust is very carefully structured.
    – Dilip Sarwate
    Mar 5, 2021 at 15:39

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