Although the identity of the participant's beneficiary under the plan is largely irrelevant while the participant is alive, it becomes important after the participant's death in that the distribution period may include the life expectancy of a "designated beneficiary." A "designated beneficiary" is "any individual designated as a beneficiary by the participant," thus excluding any beneficiary that is not an individual, such as an estate. And so, naming an estate as a beneficiary is generally not advisable, since it would require the distribution of the plan benefit over a much shorter period after the participant's death.

Trusts are treated far more liberally, in that the beneficiaries of a trust are to be treated as designated beneficiaries with respect to the trust's interest in the participant's benefit, provided certain requirements are met. The trust must be valid under state law. It must be irrevocable or will become, by its terms, irrevocable upon the participant's death. The beneficiaries must be identifiable from the trust instrument and proper documentation must be furnished to the plan (e.g., a list of all the beneficiaries).

If there are multiple designated beneficiaries, the beneficiary with the shortest life expectancy is generally the designated beneficiary for purposes of determining the distribution period. If one of the beneficiaries is not an individual, e.g., an estate or a charity, the participant is treated as not having any designated beneficiaries, even if there are also individual beneficiaries.

Problems with multiple beneficiaries can be minimized by creating separate accounts for each beneficiary. The minimum required distribution is determined separately for each separate account, based on the life expectancy of the designated beneficiary of each separate account. For example, assume a participant's account is payable to "my three children, A, B and C" in the event of the participant's death. If the account is divided into three separate accounts by December 31 of the year following the participant's death, each child will be considered the designated beneficiary with respect to such child's account. In the absence of a division into separate accounts, the oldest child is deemed to be the designated beneficiary.