TOD and beneficiary designations are not rival choices where you pick one over the other. A transfer on death (TOD) designation and a beneficiary designation do the same job, keeping an asset out of probate so it goes straight to the person you named, but they attach to different kinds of accounts. TOD (and its bank-account cousin, payable on death, or POD) is used for brokerage accounts, individual securities, and in roughly 29 states plus the District of Columbia, real estate. Beneficiary designations are used for life insurance policies and retirement accounts like 401(k) plans, 403(b) plans, and IRAs. The practical question isn’t which is better. It’s whether the correct type is set up on every account you own, and whether each one still names the people you’d actually want to inherit.
Which Accounts Use Which
A TOD designation lets you register a security “in beneficiary form” under the Uniform Transfer on Death Securities Registration Act, which nearly every state has adopted. The account records list who takes ownership at your death, and you keep complete control while you’re alive. You can sell, change the beneficiary, or close the account without telling the named person. Bank accounts use the same mechanism under the POD label. Different word, identical function.
Transfer on death deeds extend the concept to real property in about 29 states and D.C. A recorded TOD deed names who inherits the house or land, but gives that person zero ownership rights while you’re living. You can sell, mortgage, or revoke at any time.
Beneficiary designations work differently in form, though the outcome looks similar. These are contract-based: when you open a life insurance policy or retirement account, the provider’s contract asks you to name who receives the proceeds, and that contract controls payment at your death. The account isn’t just registered to pass; it’s a private agreement to pay.
Both Beat Your Will
This is the point most people miss. A TOD registration and a beneficiary designation both override your will, every time. If your will leaves your IRA to your brother but the IRA’s beneficiary form still names your ex-spouse, the ex-spouse gets paid. The financial institution follows the form on file. Courts uphold this because these assets pass either by operation of law (TOD) or by private contract (beneficiary designation), and neither route touches the probate estate.
That also means the executor named in your will has no authority over these accounts. The executor handles probate assets only, meaning things that lack a valid beneficiary designation, a joint owner, or a trust directing their transfer. Reviewing your will alone is not estate planning. You have to review the designation on every account.
The Spousal Consent Rule for 401(k)s
One structural difference between the two systems is worth understanding before you fill out any form. Employer-sponsored retirement plans fall under the Employee Retirement Income Security Act (ERISA), which sets rules on who can be named.1U.S. Department of Labor. FAQs About Retirement Plans and ERISA If you’re married and want to name someone other than your spouse as the primary beneficiary of your 401(k), your spouse must consent in writing, and that consent has to be witnessed by a plan representative or notary.2Office of the Law Revision Counsel. 29 USC 1055 – Requirement of Joint and Survivor Annuity and Preretirement Survivor Annuity Without that signed waiver, the plan administrator pays your spouse regardless of what the designation form says.
IRAs are not governed by ERISA and do not require spousal consent at the federal level, though some states impose their own rules. TOD and POD accounts have no equivalent federal spousal-consent requirement either. If a 401(k) and an IRA sit side by side in your plan, they do not follow the same rules on who you can name.
What Happens at Divorce
Divorce is where the practical gap between these two systems opens widest, and where the choice of account type ends up mattering most.
About half the states automatically revoke an ex-spouse as beneficiary on non-ERISA accounts, including life insurance policies, IRAs, TOD brokerage accounts, and bank POD accounts, when a divorce is finalized. The other half don’t. If you live in a non-revocation state and never update the forms, your ex stays on those accounts.
For ERISA-governed retirement plans like 401(k)s, state law doesn’t help you at all. The U.S. Supreme Court held in Egelhoff v. Egelhoff that ERISA preempts state divorce-revocation statutes.3Legal Information Institute. Egelhoff v Egelhoff Plan administrators must follow the plan documents and pay whoever the beneficiary form names, even if that person is your ex-spouse and state law would otherwise have revoked the designation. The Court reasoned that forcing administrators to track the domestic relations laws of all 50 states would undermine ERISA’s goal of uniform national administration.
After a divorce, update every designation yourself. Don’t assume state law will handle it, because for your largest retirement account, it won’t.
Taxes: What Neither One Does for You
A common assumption is that these designations save on taxes. They don’t. They avoid probate, but assets you owned at death are included in your gross estate for federal estate tax purposes whether they pass through probate or straight to a beneficiary.4Office of the Law Revision Counsel. 26 USC 2033 – Property in Which the Decedent Had an Interest For 2026, the estate tax filing threshold is $15,000,000, so most families won’t owe federal estate tax at all.5Internal Revenue Service. Whats New – Estate and Gift Tax But a TOD designation on a large portfolio does nothing to shrink that taxable estate.
Retirement accounts carry an income tax wrinkle that TOD brokerage accounts don’t. Distributions from an inherited traditional IRA or 401(k) are taxed as ordinary income, and most non-spouse beneficiaries must empty the account by December 31 of the tenth year after the original owner’s death.6Internal Revenue Service. Retirement Topics – Beneficiary If the original owner had already begun required minimum distributions, the beneficiary must also take annual distributions during the 10-year window, and missed distributions carry an excise tax penalty.7Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Spouses get more flexibility. A surviving spouse can roll an inherited retirement account into their own IRA and delay distributions until their own required beginning date. A few other “eligible designated beneficiaries,” including minor children of the account holder, disabled individuals, and people not more than 10 years younger than the deceased, also qualify for extended distribution options.6Internal Revenue Service. Retirement Topics – Beneficiary
Filling Out the Form
Both types of forms share the same handful of fields that routinely cause problems.
Primary and Contingent
Every form has space for a primary beneficiary and a contingent beneficiary. The primary gets the asset first. The contingent inherits only if the primary has already died. If you skip the contingent line and your primary dies before you, the account defaults to your estate, probate kicks in, and the whole reason for the designation disappears.
Per Stirpes or Per Capita
Most forms ask you to choose between per stirpes and per capita distribution. Per stirpes, sometimes labeled “by right of representation,” sends a deceased beneficiary’s share down to their children. Name your three kids per stirpes, and if one dies before you, that child’s portion goes to their own children. Per capita splits only among living beneficiaries. Same setup, per capita, and the surviving two children take the whole account; the deceased child’s kids receive nothing. Neither is universally right. The mistake is ignoring the question and letting the institution’s default decide.
Think Twice About Naming a Minor
Minors can’t legally control financial accounts. When a child under 18 inherits through a TOD or beneficiary designation, the funds typically go into a custodial account managed by a parent or court-appointed guardian until the child reaches the age of majority, which runs between 18 and 21 depending on the state. At that age, the child gets full, unrestricted access, ready for it or not. A trust set up for the child’s benefit lets you control when and how distributions happen, and for a child with special needs, it can protect eligibility for government benefits that outright ownership would jeopardize.
When No Beneficiary Is Named
If you never named anyone, or if every named beneficiary has died and you listed no contingent, the account typically defaults to your estate.8Fidelity. What Happens to Your 401(k) When You Die That means probate, with its time, cost, and public disclosure. For retirement accounts, there’s an added hit: the inherited account may lose its most favorable distribution options, compressing the withdrawal timeline and raising the tax bill.
Keeping Designations Current
Most institutions let you add or change TOD and beneficiary designations through their online portal. For a 401(k) or similar employer plan, you’ll go through your benefits administrator or the plan provider’s site. The forms ask for each beneficiary’s full legal name, Social Security number, date of birth, and address. Get these details exactly right. A mismatch between your form and the beneficiary’s government ID can hold up the transfer at the worst possible moment.
Review every designation after any marriage, divorce, birth of a child, or death of a named beneficiary. The forms take five minutes. Outdated designations can take years and real legal fees to untangle, assuming they can be fixed at all.