What happens to a 401(k) when someone dies?

A 401(k) passes directly to whoever is named as beneficiary on the account — bypassing the will entirely. If no beneficiary is named, the account typically goes into the estate and may be subject to probate, which can significantly delay access and increase costs.

Understanding what happens next depends largely on your relationship to the deceased. Spouses have more flexibility than other heirs, and the rules changed significantly after the SECURE Act of 2019. Here is what you need to know.

How beneficiary designations work

A 401(k) is a contract between the account holder and the plan. When the account owner dies, the plan looks at the beneficiary designation form on file — not the will. Even if the will says "everything goes to my sister," if a different person is named on the 401(k) beneficiary form, that person receives the money.

This is why keeping beneficiary designations current matters so much. Marriage, divorce, and the death of a named beneficiary are all reasons to update the form immediately.

What if there is no beneficiary named?

If the account owner never named a beneficiary, or if all named beneficiaries have already died, the account typically passes to the owner's estate. At that point it goes through probate, the court-supervised process for distributing assets. Probate can take months or years, and the tax treatment becomes less favorable because the estate cannot use the extended distribution rules that individual beneficiaries can.

Spousal beneficiary options

A surviving spouse has more options than any other type of beneficiary.

Roll over to their own IRA or 401(k). The spouse can roll the inherited account into their own retirement account. This is usually the most tax-efficient choice because it allows them to defer distributions until their own required minimum distribution (RMD) age — currently 73 under federal law.

Keep the account as an inherited 401(k). The spouse can leave the money in the plan (if the plan allows it) or move it to an inherited IRA. Under this option, they can take distributions based on their own life expectancy, which may allow the account to grow longer.

Take a lump-sum distribution. The spouse can withdraw all of the money at once, but ordinary income tax will be owed on the full amount in the year of distribution. This option is rarely optimal for large accounts.

If the surviving spouse is younger than 59½, keeping the account as an inherited account rather than rolling it over has one practical advantage: withdrawals from an inherited account are not subject to the 10% early withdrawal penalty, whereas withdrawals from the spouse's own IRA before age 59½ are.

Non-spouse beneficiary rules: the 10-year rule

The SECURE Act of 2019 changed the rules significantly for non-spouse beneficiaries — adult children, siblings, friends, or non-spousal partners named on the account. Most non-spouse beneficiaries are now subject to the 10-year rule: the entire account must be emptied by December 31 of the tenth year after the account owner's death.

There is no requirement to take distributions in any specific year within those 10 years, but the full balance must be withdrawn by the end of year 10. Every dollar withdrawn is treated as ordinary income in the year it is taken, so the timing of distributions can have a significant effect on the beneficiary's tax bill.

Exceptions to the 10-year rule

Certain beneficiaries are classified as "eligible designated beneficiaries" and are not subject to the 10-year rule:

• Surviving spouses (as described above)
• Minor children of the account owner — but only until they reach the age of majority (typically 18 or 21 depending on the state). Once they reach that age, the 10-year clock starts.
• Disabled individuals (as defined by the IRS)
• Chronically ill individuals
• Beneficiaries who are not more than 10 years younger than the deceased

If you fall into one of these categories, you can stretch distributions over your lifetime rather than being forced to empty the account in 10 years.

Required minimum distributions on inherited accounts

For accounts where the original owner had already started taking RMDs (meaning they were 73 or older), non-spouse beneficiaries subject to the 10-year rule may also be required to take annual distributions in years 1 through 9, not just empty the account by year 10. The IRS has provided guidance on this, but the rules remain somewhat in flux — a tax advisor can help you determine the right schedule.

Taxes on inherited 401(k) distributions

A traditional 401(k) is funded with pre-tax dollars, so every dollar withdrawn by the beneficiary is subject to ordinary federal income tax in the year of distribution. There is no capital gains rate — distributions are taxed as regular income.

Most states also tax inherited retirement account distributions, though a handful of states exempt retirement income entirely. Check your state's rules, because taking a large distribution in a single year could push you into a higher tax bracket both federally and at the state level.

Inherited Roth 401(k) accounts

A Roth 401(k) is funded with after-tax dollars, so qualified distributions are tax-free. The same 10-year rule applies to non-spouse beneficiaries of an inherited Roth 401(k), but since distributions are not taxable, the timing pressure is much less severe. There is still no long-term benefit to leaving money in the account past year 10, but there is no tax cost to waiting until year 10 to take the full distribution if that works for your situation.

How to claim an inherited 401(k)

To claim the account, you will generally need to:

1. Contact the plan administrator (typically the deceased's employer or the financial institution managing the plan)
2. Provide a certified copy of the death certificate
3. Provide proof of your identity and your relationship to the deceased
4. Complete the plan's beneficiary claim form

The plan administrator will walk you through their specific process. If the plan is with an employer, the HR department is often the right first contact. If the account has already been rolled to an IRA at a brokerage, contact that brokerage directly.

Processing time varies. Some plans move quickly; others take several weeks. Keep copies of every document you submit.

What happens if the named beneficiary also dies?

If the primary beneficiary died before the account owner and no contingent beneficiary was ever named, the account typically falls to the estate. If a contingent beneficiary (a backup) was named, that person inherits the account. Some plans have their own default rules — review the plan documents or ask the administrator.

How to update beneficiary designations

If you have a 401(k) of your own, reviewing your beneficiary designation is one of the most important steps in estate planning. Log in to your plan's online portal or contact HR to see who is currently named. You can update the designation at any time, and the change takes effect immediately.

Name both a primary and a contingent beneficiary. Consider whether a trust makes sense if your primary beneficiary is a minor — naming a minor directly can create complications because minors cannot legally manage large sums of money.

Frequently asked questions

Does a 401(k) go through probate?

Only if no living beneficiary is named on the account. When a valid beneficiary designation is on file, the account passes directly to that person outside of probate. This is one of the key advantages of a 401(k) over assets left through a will.

Can a beneficiary disclaim an inherited 401(k)?

Yes. A beneficiary can disclaim (formally refuse) an inherited 401(k) within nine months of the account owner's death. If they do, the account passes to the contingent beneficiary or, if none exists, to the estate. Disclaiming is sometimes done for tax planning reasons — consult a tax advisor before making this decision.

What happens to 401(k) loans when someone dies?

If the deceased had an outstanding loan against their 401(k), the unpaid balance is typically treated as a distribution at the time of death. That amount becomes taxable income to the estate, and it reduces what is available to beneficiaries.

Is there a penalty for withdrawing an inherited 401(k)?

No. The 10% early withdrawal penalty that normally applies to retirement account withdrawals before age 59½ does not apply to inherited accounts. Beneficiaries owe ordinary income tax on distributions from a traditional inherited 401(k), but not the additional penalty.

What Passings Can Help With

Dealing with a loved one's finances after a death is overwhelming, especially when retirement accounts, beneficiary rules, and tax deadlines are all in play at once. Passings connects families with financial professionals and estate planning attorneys who can walk you through the process, review the options for an inherited account, and help you avoid costly mistakes. You can also use Passings to organize all of the end-of-life documents and account information that your own family will need someday — so that when the time comes, the people you love won't have to search for answers alone.

Disclaimer — For informational purposes only

This article is compiled from publicly available resources and is provided solely for general informational purposes. It does not constitute and should not be relied upon as legal, financial, tax, insurance, medical, psychological, or other professional advice. Passings is a planning and organizational platform, not a licensed advisory service, and no attorney-client, financial advisor-client, or other professional relationship is created by reading this content.

Laws, regulations, financial products, and professional standards vary by state and change over time. Passings makes no representations or warranties — express or implied — regarding the accuracy, completeness, timeliness, or suitability of any information contained herein. To the fullest extent permitted by applicable law, Passings disclaims all liability for any loss, damage, or harm arising from your use of or reliance on this content. Always consult a qualified, licensed professional — including an attorney, financial advisor, CPA, or licensed counselor — before making decisions specific to your situation.

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