What happens to your 401(k) or IRA when you die?

The will that said "split equally" — and the 401(k) that did not

A widower updates his will after remarrying: everything to his current spouse and adult children in equal shares. He dies believing the estate plan matches his intent. The 401(k) still names his ex-wife from a form signed fifteen years ago. The plan pays her directly. The will never reaches that account.

That outcome is normal, not a court error. Retirement plans and IRAs are contracts. The IRS explains that beneficiaries receive those assets under the plan's terms according to the designation on file — regardless of what a later will says. Probate governs assets that pass through the estate; beneficiary-designated retirement accounts generally do not.

Why the beneficiary form beats the will

A will controls probate property: bank accounts in your name alone, personal property, real estate without a TOD deed, and anything titled to your estate. It does not retitle a 401(k), IRA, Roth IRA, 403(b), or similar account. Those assets have their own transfer mechanism: the beneficiary designation you file with the custodian or plan administrator.

When the designation names a person, most accounts pass outside probate directly to that beneficiary. When it names your estate, or when no valid beneficiary survives you, the account typically becomes a probate asset — slower, public, and often worse for income-tax planning because the estate (not an individual beneficiary) may receive the distribution options.

The practical rule: treat beneficiary forms as part of the estate plan, not HR paperwork you filed once at hire. Audit them after marriage, divorce, births, deaths, and any trust funding — and keep them consistent with the rest of the plan.

401(k) vs IRA: same idea, different paperwork

Both account types pass at death through beneficiary designations and trigger required minimum distribution rules for heirs. The differences show up in who administers the account and what spousal protections apply.

For qualified plans covered by ERISA — most private-sector 401(k)s — federal law generally protects a spouse's interest in the account. Naming someone other than your spouse as primary beneficiary usually requires your spouse's written, notarized consent witnessed by a plan representative or notary. IRAs are not ERISA plans; spousal default rules instead depend on state community-property or elective-share law and whether you live in a community-property state.

Distribution options for beneficiaries also come from the plan document for 401(k)s. The plan administrator should explain what heirs may do — roll to an inherited IRA, take a lump sum, or stretch under allowed rules. IRA custodians follow IRA rules under Publication 590-B. If the plan allows, rolling a 401(k) inheritance to an inherited IRA at an outside custodian is often how families consolidate accounts — but it must fit the plan's terms and the beneficiary's deadline.

Surviving spouses: three paths, different tax clocks

When the account owner dies in 2020 or later and the spouse is the sole primary beneficiary (determined by September 30 of the year after death, per IRS guidance), the spouse generally has more flexibility than any other heir.

Option one — treat the account as the spouse's own: roll the inherited assets into the spouse's IRA. RMDs then follow the spouse's age under current law (age 73 for those born 1951–1959, age 75 for those born 1960 or later under SECURE 2.0). Withdrawals before age 59½ may trigger the 10% early-distribution penalty because the account is no longer "inherited."

Option two — remain a beneficiary of an inherited IRA: the spouse can often delay beginning RMDs until the later of the year after death or the year the deceased would have reached RMD age if death occurred before that date. Inherited-IRA distributions are generally not subject to the 10% early-withdrawal penalty regardless of the spouse's age — which matters when the spouse is under 59½ and needs access.

Option three — the 10-year rule: empty the account by December 31 of the 10th year after death. This can suit spouses who want flexibility when the deceased had not yet begun RMDs. SECURE 2.0 also added an election for some surviving spouses to use the deceased spouse's RMD schedule; that path is narrow and must be chosen by the applicable deadline — confirm current IRS guidance before relying on it.

Everyone else: the 10-year rule and eligible designated beneficiaries

For deaths in 2020 or later, most adult children, siblings, friends, and other non-spouse individual beneficiaries are subject to the SECURE Act's 10-year rule: the entire inherited account must be distributed by December 31 of the 10th calendar year after the year of death. There is no lifetime "stretch" for this group anymore.

If the original owner died before beginning RMDs, the beneficiary may have flexibility on timing within the 10-year window — but the account must still be empty by the deadline. If the owner had already begun RMDs, IRS rules generally require annual RMDs in years 1 through 9 based on the beneficiary's life expectancy, with the remainder distributed by the end of year 10. Missing those annual RMDs can trigger penalties (currently up to 25% of the shortfall under SECURE 2.0's reduced penalty structure).

Certain "eligible designated beneficiaries" keep more favorable options: a surviving spouse (already covered), a minor child of the account owner until majority, a disabled or chronically ill individual, and someone not more than 10 years younger than the owner. They may take distributions over life expectancy or elect the 10-year rule in some cases. Once a minor child reaches the age of majority, the 10-year clock typically applies from that date.

Non-individual beneficiaries — estates, most trusts without look-through treatment, charities — follow different rules. Naming a trust requires a see-through trust that qualifies under IRC § 401(a)(9) if you want the trust to stretch or use the 10-year rule through individual beneficiaries; a generic family trust name on the form is a common planning mistake.

Inherited Roth accounts and the income-tax picture

Inherited Roth IRAs and Roth 401(k) balances are generally subject to the same beneficiary RMD framework as traditional accounts — including the 10-year rule for most non-spouse heirs after 2019 deaths. The difference is tax character: qualified Roth distributions are income-tax-free to the beneficiary.

For Roth accounts, the five-year rule still matters for earnings: if the Roth was less than five years old at death, some distributions of earnings may be taxable even to beneficiaries. The IRS treats inherited Roth IRAs separately — you cannot satisfy an inherited Roth's RMDs by withdrawing from a different Roth IRA you own unless that other account was also inherited from the same decedent.

Traditional 401(k) and IRA inheritances are generally taxable as ordinary income to the beneficiary in the year of distribution. Large inherited balances therefore carry a second planning question beyond "who inherits": when heirs take taxable withdrawals across the 10-year window or life-expectancy schedule.

What to fix while you are still the account owner

Pull every retirement account statement and confirm primary and contingent beneficiaries. Primary = first in line; contingent = if the primary dies first or disclaims. Blank or "estate" designations deserve a deliberate decision, not inertia.

Align forms with the will and any trust: if the trust should receive retirement assets for a child, the trust document and the beneficiary form must work together — usually with a lawyer who understands see-through trust rules. If the goal is outright gifts to individuals, name them directly.

After life events, update within weeks, not years. Divorce decrees rarely auto-update 401(k) forms; remarriage does not remove an ex-spouse from an IRA designation you never changed. Keep copies of signed forms or online confirmations in the family vault.

Tell your executor and spouse where accounts live and who is named. The best designation fails if no one knows the account exists.

Questions worth asking before you file the form

Who is primary and contingent on every 401(k), IRA, Roth, and old rollover still open — and when did we last check?

Does our 401(k) need spousal consent to name children or a trust instead of a spouse?

If we name a trust, does the trust document qualify as a see-through trust under the tax rules?

For our heirs, will they face the 10-year rule, annual RMDs, or spousal rollover options — and do they know the tax timing?

Educational only: not tax, legal, or investment advice. Plan terms, SECURE Act elections, and state spousal rights vary; confirm current IRS guidance and work with a qualified professional before acting.

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