What Happens to Your 401(k) When You Die?

When you die, your 401(k) only passes to the named beneficiary. Spouses can roll the account into their own IRA, but most non-spouse beneficiaries must withdraw the funds within 10 years, which can trigger substantial tax bills if not planned carefully.

 

Who Inherits Your 401(k)?

When it comes to your 401(k), one rule overrides everything else: Your beneficiary form controls who gets the money.[1]

Not your will. Not your trust. Not what you told your family.

Your 401(k) beneficiary form is a legal contract that dictates exactly who gets your retirement savings, and it supersedes your will. 

And here’s where the biggest mistake happens: Not naming a beneficiary at all.

If you leave that section blank, your 401(k) defaults to the plan’s rules and may be forced through probate. 

Probate is public, time-consuming, and potentially expensive. It can take months (or longer) while your family waits for access to the funds.[1]

 

Spouse vs. Non-Spouse Beneficiaries: The Rules Are Not the Same

Spouses have significantly more flexibility. 

Non-spouse beneficiaries, such as children, siblings, or other non-spouse heirs, face much stricter rules.

Additionally, if you’ve inherited a 401(k) and you’re a minor, chronically ill or disabled, or not more than 10 years younger than the decedent, you have different distribution rules.

What Options Does a Surviving Spouse Have?

If your spouse is your beneficiary, they have several options.

1. Take a lump-sum distribution: Taking a lump-sum distribution will not incur an early withdrawal penalty, but the distribution will be taxed as ordinary income and could put you into a higher tax bracket.
   
2. Leave the inherited 401(k) where it is: If you do this, you are still required to take RMDs based on your life expectancy, but this method may allow you to minimize taxes by withdrawing money over time. If you are over 59½ and your spouse was taking RMDs when they passed, you have the option of continuing that payment or delaying it until you reach 73. If you’re already 73, taking RMDs is required. If you are between 59½ and 73 and your spouse was not yet 73, you can take RMDs based on when your spouse would have reached RMD age.
   
3. Transfer the funds directly from the 401(k) account into a new inherited IRA: If you rolled the inherited 401(k) into a new inherited IRA, you are allowed to make withdrawals without incurring an early withdrawal penalty, a move that may be helpful for spouses who have not reached age 59½. Inside the inherited IRA, the plan operates according to the distribution rules for inherited IRAs.
   
4. Roll the inherited 401(k) directly into your own 401(k) or IRA: This choice gives the inherited money more time to grow. Regular 401(k) rules apply for withdrawals prior to retirement age. Rollovers do not incur penalties, but you’ll likely owe tax if you convert a traditional 401(k) to a Roth 401(k) or a Roth IRA.

 

Inheriting a 401(k) from a Non-Spouse

For most non-spouse beneficiaries, the rules changed under the SECURE Act. 

Today, most non-spouse beneficiaries must fully withdraw an inherited 401(k) within 10 years of the original owner’s death.

There is no option to stretch distributions over a lifetime in most cases.

Non-spouse beneficiaries have 3 options when it comes to withdrawing: 

1. Leave the money in the 401(k) and withdraw it over 10 years: You can leave the money in the 401(k) account, but you’ll still need to withdraw it within 10 years, to meet the 401(k)’s 10-year rule.
   
2. Take a lump-sum distribution: If you take a lump-sum distribution, you may incur hefty taxes. If the inherited 401(k) is pre-tax, you’ll pay taxes at ordinary income rates. If the account is a Roth 401(k), then you won’t owe any income taxes on the withdrawal.
   
3. Transfer funds directly from the 401(k) account into an inherited IRA: In an inherited IRA, all money must be withdrawn within 10 years. If the money was in a pre-tax 401(k), you’ll owe tax on any withdrawals from the inherited traditional IRA. If you are withdrawing from a Roth 401(k) or converting it into a Roth IRA, there will be no tax implications as the money was contributed on an after-tax basis. If you convert a pre-tax 401(k) into a Roth IRA, you’ll generally owe taxes on the conversion.

 

The 401(k) 10-Year Rule and How It Works

With the passage of the 2019 SECURE Act, most non-spouse beneficiaries have 10 years to deplete the inherited account, called the 10-year rule.

• If the account owner died in 2020 or later: Non-spouse beneficiaries must withdraw all funds by the end of year 10 of the account owner’s passing or be subject to a 50% penalty on any remaining account assets.
• For non-spouse beneficiaries inheriting in 2020 or later: Only minor children of the account owner, disabled or chronically ill individuals, or those not more than 10 years younger than the account owner at the time of their death can take RMDs based on their life expectancy. Once the minor child reaches the age of maturity based on their own state rules, then the 10-year rule kicks in. The 10-year rule will not kick in for the other two categories of beneficiaries.

 

Roth vs. Traditional 401(k): How Taxes Work for Heirs

Not all 401(k)s are taxed the same – and this matters for your beneficiaries.

If you have a Traditional 401(k): Every dollar your beneficiary withdraws is taxed as ordinary income. A large inherited balance can generate a significant tax bill.

If you have a Roth 401(k): Withdrawals are generally tax-free for your beneficiary, provided the account has satisfied the 5-year holding requirement.

 

How to Protect Your 401(k) Beneficiaries: 3 Simple Steps

Step 1: Check Your Beneficiary Forms 

Log into your 401(k) account online or contact your HR department or plan administrator. 

Find the beneficiary section and confirm who is listed. 

You should have both a primary beneficiary and a contingent (secondary) beneficiary in case your primary is unable to inherit the account.

Step 2: Update Your Beneficiaries after Every Major Life Event

Your beneficiary form is not a “set it and forget it” document. 

You should review it after every major life event:

• Marriage
• Divorce
• Birth of a child
• Death of a loved one

One critical point: A divorce decree does not automatically remove an ex-spouse as your beneficiary. You must update the form yourself.

Step 3: Talk to Your Beneficiaries

This final step is simple but often overlooked. 

Let your beneficiaries know that they are named on the account and tell them where the account is held.

Most importantly, advise them to contact a financial professional before making any withdrawal decisions. 

A quick decision to cash out could trigger a massive, avoidable tax bill.

 

Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

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Sources: 

[1] Internal Revenue Service. Retirement Topics – Beneficiary. U.S. Department of the Treasury. Last updated August 26, 2025. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary 

[2] Fidelity Investments. Inherited 401(k): What to Know if You’re a 401(k) Beneficiary. Fidelity Learning Center. Published July 30, 2025. https://www.fidelity.com/learning-center/smart-money/inherited-401k-rules