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Beneficiary vs. Joint Owner: Which Is Best for Your Investment Account?

Admin • September 29, 2023

An aspect of financial planning that many of us might not relish discussing is preparing for the unexpected. One of the many decisions you will face is determining the best way to pass on your investment accounts to your children when you die. 

Should your children be beneficiaries or joint owners of your investment accounts? Is it wiser to look at other options, like using a will? What is the best approach? Ultimately, we aim to help you make a practical and thoughtful decision that best serves your family’s financial future.

Beneficiary Designation vs. Joint Ownership vs. Will: What’s the Difference?

Before we look into the pros and cons of each option, it’s crucial to understand the differences between having your children as beneficiaries, or joint owners, or designating them in your will.

  • Beneficiary designation: When you name someone as a beneficiary on your investment accounts, they directly inherit those assets upon your passing, bypassing probate.
  • Joint ownership: You and your children share ownership of the investment accounts while you’re alive. In the event of your passing, ownership automatically transfers to your children, avoiding probate.
  • Will: A will outlines your wishes regarding asset distribution after your death. Assets distributed through a will typically go through probate, which can be lengthy and costly.

Now that we’ve clarified the terms let’s explore the pros and cons of having your children as beneficiaries or joint owners on your investment accounts.

Pros of Children as Beneficiaries on Investment Accounts

Not all investment accounts allow you to name beneficiaries. The ability to designate beneficiaries on an investment account depends on the type of account and the policies of the financial institution or brokerage firm that holds the account. 

Typically, retirement accounts such as IRAs and 401(k)s allow you to name beneficiaries. Brokerage accounts don’t automatically include beneficiary designations; however, you can usually designate your children as beneficiaries on your investment account through a Transfer on Death (TOD) designation. This legal arrangement allows you to select a specific individual or individuals who will automatically inherit the assets held in the account upon your death. 

The benefits of adding your children as beneficiaries to your accounts can include:

  1. Quick access to funds: One of the most significant advantages of designating your children as beneficiaries is that they can access the funds immediately upon your passing. This is crucial for covering immediate expenses like funeral costs, medical bills, or mortgage payments.
  2. Avoiding probate: Beneficiaries bypass the probate process, so your children won’t have to navigate time-consuming and potentially costly court proceedings. They can receive their inheritance swiftly.
  3. Privacy: Beneficiary designations are generally private and don’t become public records, ensuring your financial matters remain confidential.
  4. Revocable and changeable: You can typically change or revoke your beneficiaries at any time. This flexibility allows you to adapt the designation to changes in your life circumstances or financial plans.
  5. No impact on current ownership: You continue to control the account. You can continue to use, manage, and make changes to the account as you see fit.  

Beneficiaries can help ensure that your assets are distributed according to your wishes. It’s important to note that state laws govern TOD designations, and the specific rules and requirements may vary depending on where you live. It’s a good idea to consult with your legal or financial professional, who can provide personalized advice.

Cons of Children as Beneficiaries on Investment Accounts

Let’s look into some potential drawbacks of designating your children as beneficiaries. While this approach offers certain advantages, it’s essential to consider the limitations and complications that may arise. Understanding these drawbacks will help you make an informed decision that best suits your family’s financial future.

Potential drawbacks can include:

  1. Minors as beneficiaries : Generally, investment accounts cannot transfer directly to your minor children when you die. If you have not designated a trustee through your will or living trust, the courts will name a conservator until your child reaches the age of majority (18 or 21, depending on the state).
  2. Financial impact on beneficiaries : Even if your child is of legal age, they may not be mature enough to handle a large influx of money. Once you pass, your beneficiary has complete control of the asset. Even if you place instructions in your will indicating how you want the beneficiary to handle the account, your instructions don’t need to be followed. The beneficiary designation supersedes the will , and the beneficiary can do what they want.
  3. Tax implications : There could be tax implications when your beneficiary inherits the account. You’ll want to seek guidance from your financial advisor or tax professional.

If your children are responsible adults who can handle their finances wisely, designating them as beneficiaries can be a straightforward and practical choice. However, you may want to consider other options if they are minors or not financially savvy.

If you choose to name your children as a beneficiary on your account(s), keeping a few things in mind is essential. You should regularly review and update your beneficiaries. Life changes happen—for example, the birth or death of a child. Consider adding a contingent beneficiary in the event something happens to the primary beneficiary. If you have multiple investment accounts, be sure to review every account.

Pros of Children as Joint Owners of Investment Accounts

When you add your children to your investment accounts, they have equal ownership. Once you pass away, the account passes directly to the joint owner(s). Having your children as joint owners of your investment accounts has some similar advantages to naming your children as beneficiaries:

  1. Immediate access and control : Joint ownership gives your children quick access to the accounts and total control of the assets upon your death. They can manage and use the funds as needed without delay.
  2. Avoids probate : Like beneficiary designations, joint ownership bypasses the probate process, saving time and money for your heirs.
  3. Simplified management : If you become incapacitated, joint owners can assist in managing the accounts and make financial decisions on your behalf, ensuring your finances are taken care of.

Cons of Children as Joint Owners of Investment Accounts

Having your children as joint owners of your accounts can raise many complex questions, particularly if you have more than one child. Some of the drawbacks to having your children as joint owners include:

  1. Shared responsibility : Your children have equal responsibility for the accounts while you’re alive. This may create complexities if they have different financial goals or disagree on how to manage the assets. Who will claim the income or capital gains on the account? If you have multiple children, will they all be added as joint owners? There are many factors to be considered if you choose this option.
  2. Potential creditor issues : If your children face financial difficulties or legal troubles, their creditors may have claims on the jointly owned accounts, putting your assets at risk. In addition, if a married child gets divorced, the ex-spouse could also have a legal claim to a portion of the account.

While having your children as joint owners can have its merits, it brings a host of intricate issues to consider. This option typically works if you only have one child and want everything to quickly pass to your child after your death. But even then, you must consider whether the benefits outweigh the potential drawbacks.

Investment Account Beneficiary vs. Will

Choosing between designating investment account beneficiaries and relying on a will is a pivotal decision in estate planning. Each approach has its unique strengths and considerations, and understanding these can help you chart a course that aligns best with your financial vision.

When you name beneficiaries on your investment accounts, you are essentially creating a direct pathway for the transfer of assets upon your passing. This streamlined process bypasses the often lengthy and costly probate system, ensuring your beneficiaries receive their inheritance promptly. Beneficiary designations offer privacy, as they typically remain outside the public domain. 

Conversely, a will serves as a comprehensive blueprint for the distribution of your assets after your passing. It allows you to specify not only who receives what but also who will oversee the execution of your wishes as the executor. The benefit of a will is that it allows for a more nuanced estate plan, accommodating diverse family dynamics and addressing specific bequests. However, the trade-off is that wills are subject to probate and are public documents, potentially exposing your financial matters to public scrutiny. 

Therefore, the decision between beneficiary designations and a will hinges on your preferences for efficiency, privacy, flexibility, and the level of complexity you wish to impart to your estate plan.

Five Pines Wealth Can Help You Determine Your Best Path

There are many factors to consider when determining how to pass on your investment accounts to your children. The conversation is part of responsible financial planning, and the choices can significantly impact your family’s future. 

At Five Pine Wealth Management , we understand these choices can be challenging. Our estate planning and financial management expertise can provide the guidance you need to create an effective strategy that aligns with your circumstances and goals. We’d love to meet with you to see how we can help you pass on your investments to your children. Give us a call at 877.333.1015 or send us an email at info@fivepinewealth.com .

Curious About a Roth Conversion Strategy? When It Actually Makes Sense (Or Not)

April 17, 2025
“Should I convert my traditional IRA or 401(k) to a Roth?” If you’ve asked yourself this question lately, you’re in good company. Perhaps you’re a high-earner who makes too much to contribute directly to a Roth IRA but wants access to tax-free growth. Or maybe you’re concerned about future tax rates and want to ensure more tax-free income in retirement. With market volatility and changing tax laws on the horizon, many of our clients are wondering if a Roth conversion could be a smart money move to save on taxes and provide more flexibility down the road. While we think Roth conversions are a great strategy, they don’t make sense for everyone. Let’s break down when Roth conversions actually make sense — and when they don’t — in plain English. Back to Basics: What is a Roth IRA? Before we dive into strategy, let’s recap the differences between a Roth retirement account and a traditional one. Traditional retirement accounts, such as a traditional IRA or 401(k), provide you with a tax deduction when you contribute. You save on taxes now , but you’ll pay taxes on that money in the future when you withdraw it as income in retirement. A Roth IRA allows you to contribute money that you’ve already paid income taxes on. You don’t enjoy savings this year, but the interest you earn on that money grows tax-free, and the withdrawals are 100% tax-free in retirement once you meet certain eligibility requirements. For many people, these lifetime tax savings are significantly greater , which is why a Roth conversion is such an intriguing strategy. What Is a Roth Conversion? Imagine you’ve been making retirement contributions to a traditional 401(k) for the past 25 years. You’ve enjoyed income tax deductions each year as you squirrel away money for your future. But as you’re scrolling through your newsfeed one night after dinner, you come across an article about the unexpected tax bills many retirees are faced with in retirement, significantly eating into their retirement income. The article suggests making contributions to a Roth account instead, in order to avoid this scenario in the future. But you’ve already been making contributions to a traditional account for 25 years. Have you missed out? Not necessarily. With a Roth conversion, you can move money from another retirement account, such as a Traditional IRA or 401(k), into a Roth IRA. Essentially, a Roth conversion allows you to “pre-pay” taxes so your future self won’t have to. For many people, this can be a smart move. But there are caveats: Convert too much at once, and you might push yourself into a higher tax bracket this year. Convert too little over time, and you might miss opportunities to lower your lifetime tax bill. The challenge lies in finding the right balance. When Roth Conversions Make Sense In general, Roth conversions can make sense for individuals in the following circumstances: 1. You’re a High Earner For 2025, direct Roth IRA contributions are phased out for single filers with incomes between $150,000-$165,000 and for joint files with incomes between $236,00-$246,000. If your income exceeds these thresholds, you can’t contribute directly to a Roth IRA. However, Roth conversions have no income limits. This creates a powerful opportunity for high-income earners to still enjoy tax-free growth in retirement. By making non-deductible contributions to a traditional IRA (which has no income limits) and then converting those funds to a Roth IRA — often called a “backdoor Roth” — you can effectively circumvent the income restrictions. 2. You’re in a “Tax Valley” You may be in a “tax valley” if you’re currently experiencing a period where your income is lower than you expect in the future. For example, you may be early in your career, taking a sabbatical from work, or starting a business. These can all be opportune years to make a Roth conversion. New retirees may also find themselves in a temporary “tax valley.” For example, if you’re recently retired but haven’t yet started collecting Social Security or required minimum distributions (RMDs), this window from your early 60s to 70s could be a golden opportunity to convert portions of your traditional retirement savings into a Roth. By strategically moving money over a few years, you can fill up the lower tax brackets and reduce your future RMDs, which might otherwise push you into a higher bracket later. This can also help reduce the tax burden on your Social Security benefits once you begin collecting them. 3. You Have a Long Time Horizon Younger investors in their 30s and 40s may benefit from a Roth conversion if they have decades for that money to grow tax-free. For example, $100,000 converted to a Roth at age 35 could potentially grow to over $1 million by retirement age — all of which could be withdrawn tax-free. That same conversion done at age 60 might only have time to grow to $140,000-$150,000 before withdrawals begin. 4. You Want to Leave a Tax-Free Legacy Roth IRAs are powerful estate planning tools. Your spouse can treat an inherited Roth IRA as their own, allowing the assets to continue growing tax-free without requiring distributions during their lifetime, creating the potential for decades of additional tax-free growth. Kids or grandkids who inherit a Roth IRA will also enjoy a tax-free inheritance, at least for a time. In contrast, inheriting a traditional IRA means your beneficiaries would pay taxes on every dollar they withdraw — potentially during their peak earning years when they’re in a higher tax bracket. When Roth Conversions Don’t Make Sense Of course, just because you can convert doesn’t mean you should . Here are a few situations when a Roth conversion strategy might not work in your favor: 1. You’re Currently in a High Tax Bracket If you’re currently in your peak earning years and already paying taxes in the 35% or 37% federal tax brackets, converting could mean handing over a substantial portion of your retirement savings to the IRS. For example, a $100,000 conversion for someone in the 35% federal tax bracket could trigger an additional tax bill of $35,000 or more. If you expect to be in a lower bracket during retirement — say 22% or 24% — waiting to pay taxes then might be more advantageous. 2. You Don’t Have Cash to Pay the Taxes The most efficient Roth conversion strategy requires having cash outside your retirement accounts to pay the resulting tax bill. Here’s why this matters: If you have to withdraw extra money from your traditional IRA to cover the taxes on the conversion, you’re reducing your future growth potential. For instance, if you want to convert $50,000 and are in the 24% tax bracket, you may need an additional $12,000 for taxes. If you take that $12,000 from your IRA too, you’d pay taxes on that withdrawal as well, creating a compounding tax problem. Even worse, if you’re under age 59½, you could face a 10% early withdrawal penalty on any funds used to pay the taxes, further reducing the effectiveness of your conversion. 3. You’ll Need the Money Soon In general, Roth IRAs have a five-year rule that states you must wait five years from the beginning of the tax year of your first contribution to make a withdrawal of the earnings. (You can withdraw contributions , not earnings, tax-free and penalty-free at any time.) For Roth conversions, however, a new five-year rule starts separately for each conversion. While there are exemptions to this penalty, such as disability and turning age 59½, it’s worth considering if you plan to use the converted funds in the near future. Enter: The Roth Conversion Ladder One strategy we often recommend to clients who want to implement a Roth conversion is the Roth conversion ladder. This approach helps work around the five-year rule while building a tax-efficient income stream, especially for those planning an early retirement. Here’s how it works: Year 1: You convert a portion of your traditional IRA to a Roth (let’s say $30,000). Year 2: You convert another $30,000. Year 3: You convert another $30,000. Year 4: You convert another $30,000. Year 5: You guessed it — you convert another $30,000. Year 6: Now the Year 1 conversion is available for withdrawal without penalties. Each following year : A new “rung” of the ladder becomes accessible while you continue adding new conversions at the top. Over time, you build a steady stream of tax-free income in retirement that you can predictably access. This strategy is particularly valuable for early retirees who need income before the traditional retirement age or for anyone looking to minimize RMDs down the road. For example, a couple retiring at 55 might build a conversion ladder to provide $30,000 of annual tax-free income starting at age 60, giving them a bridge until they begin taking Social Security benefits at age 67. Meanwhile, they can use other savings for the first five years of retirement while the initial conversions “season.” The ladder approach also allows you greater flexibility to manage your tax bracket each year by controlling exactly how much you convert, rather than converting a large sum all at once and potentially pushing yourself into a higher tax bracket. Making Your Roth Conversion Decision As you’ve seen, Roth conversions are far from a one-size-fits-all strategy. The right approach depends on your unique financial situation, current and future tax bracket, retirement timeline, and long-term goals. When considering a Roth conversion, remember that it’s not just about the math. Many of our clients initially hesitate at the thought of writing a big check to the IRS today, even when they know the long-term benefits. That emotional response is completely normal. This is where thoughtful financial planning comes in. At Five Pine Wealth Management , we help you look beyond the immediate tax bill to see how today’s decisions impact your retirement income, Social Security strategy, and even your legacy plans. Sometimes, what feels uncomfortable at the moment creates the greatest long-term benefit for you and your family. So, should you do a Roth conversion? The answer depends on:  Your current and projected future tax brackets Whether you’re above income limits for direct Roth contributions Your retirement timeline Whether you have cash available to pay the conversion taxes Your estate and legacy goals Your comfort with paying taxes now versus later A Roth conversion can be either a powerful wealth-building tool or an unnecessary tax expense. The difference comes down to proper planning and timing. The Next Step If you’re wondering whether a Roth conversion makes sense for your situation, let’s talk. Our fiduciary advisors will help you evaluate your options and develop a conversion strategy that aligns with your comprehensive financial plan. We’ll walk through different scenarios, look at the numbers together, and help you feel confident in your decision — whether that means converting, waiting, or taking a gradual approach with a conversion ladder. Ready to explore whether a Roth conversion is right for you? Give us a call at 877.333.1015 or send us an email at info@fivepinewealth.com to schedule a conversation.

From $250K to $1 Million: The Retirement Growth Strategies Every Investor Should Know

April 11, 2025
You've been diligently saving for retirement, and your portfolio has hit the quarter-million mark—congrats! But now you're wondering: How do I take this to the next level? Hitting $250K in retirement savings is a major milestone, but getting from there to $1 million requires a shift in strategy. When you're just getting started, the focus is often on simply contributing as much as possible. But as your nest egg grows, things like asset allocation, tax efficiency, and long-term investing strategies become just as important as how much you save. The good news? With the right approach, reaching $1 million in retirement savings is not just a dream, but a realistic goal well within your reach. At Five Pine Wealth Management, we guide investors through this journey every day. As fiduciary financial advisors , we're legally obligated to put your interests first—you won't find product pitches or commission-driven recommendations here. Just straightforward strategies designed to help you reach your goals efficiently. So, let's talk about how to optimize your approach and make that million-dollar milestone a reality.  Step 1: Investing for Retirement - Why Growth Matters More Than Ever When you had $50K or $100K saved, your main focus was likely getting more money into your accounts. However, once you cross the $250K mark, your portfolio's growth rate becomes a key factor in your future wealth. To illustrate this, let’s look at two different scenarios: If you have $250K saved and earn a 6% average annual return while contributing $15,000 per year, you’ll reach $1 million in about 15 years. If you have the same starting balance but earn an 8% return, you’ll hit $1 million in just under 12 years. That’s a three-year difference—just by optimizing your investment strategy. So, how do you make sure you’re maximizing growth? Max Out Your Tax-Advantaged Accounts Retirement accounts like 401(k)s, IRAs, and HSAs come with tax benefits that accelerate your savings. If you haven’t already, aim to max out contributions each year: 401(k): Up to $23,500 in 2025 (plus a $7,500 catch-up contribution if you’re over 50 or $11,250 for ages 60 to 63). IRA (Traditional or Roth): Up to $7,000 in 2025 (or $8,000 if you’re 50+). HSA (for those with a high-deductible health plan): $4,300 for individuals, $8,550 for families. HSAs are the only triple-tax-advantaged accounts. Max them out to use during retirement. Increase Your Savings Rate Over Time Even if you’re already contributing a healthy percentage of your income, small increases each year make a big difference. If you currently save 10% of your salary, try increasing that by 1% each year until you hit 20% or more. If you get a raise or bonus, direct at least half of it toward your retirement savings instead of lifestyle upgrades. These seemingly small changes can make a significant difference, potentially shaving years off your journey to $1 million. It’s all about the power of incremental progress. Step 2: Asset Allocation Strategies - The Right Mix of Investments Your asset allocation (the mix of stocks, bonds, and other assets in your portfolio) plays a huge role in whether or not you hit your financial goals. At $250K, you still have time before retirement, meaning your portfolio should be focused on growth. Here’s what that looks like: Stock-heavy allocation: Most mid-career investors should have at least 70-80% of their portfolio in stocks, with the remainder in bonds and alternative assets. Stocks historically provide higher long-term returns, which is key to reaching $1 million. Global diversification: Investing across U.S. and international stocks helps manage risk while still capturing growth. Low-cost index funds & ETFs: These offer broad market exposure with low fees—meaning more of your money stays invested. Remember that proper diversification isn't just about owning different stocks—it's about owning investments that behave differently under various economic conditions. Many portfolios we review are far less diversified than their owners realize, with multiple funds holding essentially the same underlying investments. Avoid These Common Mid-Career Investment Mistakes Being too conservative too early: Some investors start shifting too much into bonds and cash once they hit mid-career, but if you have 15+ years until retirement, you need growth-oriented investments. Chasing “hot” stocks or trends: Stick to a solid long-term strategy instead of jumping into whatever’s trending. Forgetting to rebalance: Market movements can throw your asset allocation off balance over time. Rebalancing once or twice a year keeps your portfolio aligned with your goals. Need help figuring out the best allocation for you? A retirement planning financial advisor (like us!) can help you fine-tune your strategy. Step 3: Using Tax-Smart Strategies to Boost Growth When you’re working your way toward $1 million, tax efficiency matters. The less you pay in taxes on your investments, the more your money can grow. Consider these tax-smart moves: Utilize Roth accounts: If you expect to be in a higher tax bracket later, Roth contributions or conversions can save you tens of thousands in future taxes. Use a tax-efficient withdrawal strategy: If you’re drawing from your portfolio, pull from taxable accounts first before tapping tax-advantaged ones. Harvest tax losses: If you have investments that lost value, selling them to offset capital gains can reduce your tax bill. Many mid-career investors start thinking about Roth conversions in their 40s and 50s. Doing small annual conversions allows you to pay taxes now at potentially lower rates and enjoy tax-free growth in retirement. Step 4: Leveraging Employer Benefits & Alternative Investments If you’re earning a healthy income, your employer might offer additional investment opportunities that can help speed up your progress toward $1 million. Employer Benefits to Take Advantage Of After-tax 401(k) contributions (if your employer allows) let you save beyond the normal contribution limits. Backdoor Roth conversions enable you to convert after-tax 401(k) dollars into a Roth IRA for tax-free growth. Stock purchase plans or equity compensation can be another valuable tool—just be sure to diversify. Alternative Investments for Higher Earners For investors with additional funds beyond traditional retirement accounts, other options might include: Real estate investing for rental income or appreciation. Private equity or venture capital for high-growth opportunities. Tax-efficient municipal bonds for those in high tax brackets. These strategies aren’t for everyone, but for higher-net-worth individuals, they can provide valuable diversification and growth potential. Step 5: The Psychological Game - Staying the Course Here's something we've noticed after working with hundreds of successful savers: the journey from $250k to $1 million is often more psychological than mathematical. Market volatility will test your resolve multiple times on this journey. When (not if) markets drop by 20% or more, your $250,000 could temporarily become $200,000 or less. This is precisely when many investors make costly mistakes. The clients who reach their goals fastest are those who: Have a clear plan they trust. Understand that volatility is the price you pay for growth. Can distinguish between temporary market noise and true financial risks. Take the market downturn of early 2020, for example. Clients who stayed invested or even added to their investments during that scary time saw their portfolios not only recover but significantly grow in the following years. In many cases, those who sold at the bottom are still trying to catch up. Building Your Million-Dollar+ Retirement Plan Turning $250,000 into $1 million+ is within reach for many mid-career professionals—particularly those who implement a strategic, disciplined approach. The difference between reaching your goals on schedule or falling short often comes down to having a customized plan that addresses your specific situation. At Five Pine Wealth Management , we've guided numerous clients through this critical growth phase of retirement planning. We believe financial advice should be straightforward, jargon-free, and focused on what works. Are you ready to accelerate your path to financial independence? Let's talk. Schedule a no-obligation consultation by calling 877.333.1015 or emailing info@fivepinewealth.com . Together, we can build a plan to help you pursue that million-dollar milestone—and potentially well beyond.