Does a Will Override a Beneficiary on a 401(k)? – Avoid This Mistake + FAQs

In most cases, a will does not override a beneficiary designation on a 401(k). The person or entity listed on your 401(k)’s beneficiary form will generally inherit that account, regardless of what your will says.

But as with many legal matters, there are important nuances to understand.

In this comprehensive guide, we’ll break down why beneficiary designations typically trump wills for retirement accounts. We’ll explore the federal law (ERISA) that governs 401(k) plans and discuss how it overrides state laws and your will’s instructions.

Will vs. 401(k) Beneficiary: Which One Really Controls?

When it comes to a 401(k) (or any retirement account with a named beneficiary), the beneficiary designation is typically king 👑.

That means the individual or entity you named on the account’s beneficiary form has the first claim to that money when you die.

Even if your will says something different – for example, leaving that account to someone else – the will’s instructions usually won’t matter for the 401(k).

Why is that the case? It’s because assets like 401(k)s are considered “non-probate” assets. They pass directly to the named beneficiary outside of the will process.

Your will deals with probate assets, which are things titled in your name alone that don’t have a beneficiary or joint owner. But a 401(k) with a beneficiary form skips the probate court entirely.

The financial institution or plan administrator will release the funds to whoever is listed as beneficiary, without looking at your will. This can come as a surprise to many people – but it’s a fundamental principle of how beneficiary designations work.

Beneficiary designations override wills by design. They are a form of contract. When you signed up for your 401(k) at work, you filled out a form naming who should get the account if something happened to you.

That form is essentially a contract between you and the plan (governed by federal law) dictating where the money goes. Your will is a separate document governed by state law.

When conflict arises between the two, the contract (beneficiary form) generally wins out. This holds true not just for 401(k)s, but also for life insurance policies, IRAs, 403(b)s, and other accounts with beneficiary clauses.

So, if you named Alice as your 401(k) beneficiary 20 years ago, but your will (written last year) leaves everything to Bob, guess who gets the 401(k)? Alice does, because of that old form – unless you’ve updated it since.

It’s easy to see how misunderstandings here can lead to what some experts call “accidental inheritance.”

That’s when your retirement account ends up in the hands of someone you no longer intend to benefit (like an ex-spouse or a distant relative) simply because you forgot to update your beneficiary form.

Bottom line: Don’t assume your will covers your 401(k). In nearly all cases, the beneficiary form on file with your 401(k) plan will take priority over your will’s instructions for that account.

Federal Law Takes Priority: ERISA and 401(k) Beneficiaries

Why are beneficiary designations so powerful, especially for 401(k) plans? The answer lies in federal law. ERISA – the Employee Retirement Income Security Act of 1974 – is the key player here. ERISA is a federal law that sets the rules for most employer-sponsored retirement plans, including 401(k)s.

Under ERISA, plan administrators are required to follow the plan documents to the letter when paying out benefits. This means they must distribute your 401(k) funds according to the beneficiary designation on file.

They cannot legally ignore a valid beneficiary form in favor of what a will says. In other words, ERISA instructs that the plan follow the beneficiary form and generally preempts (overrides) any state laws or state court orders that would say otherwise.

To put it simply, federal law makes sure your 401(k) beneficiary form is the ultimate guide for who inherits that account. Plan administrators (often financial institutions or your employer’s plan committee) have a fiduciary duty to follow the plan’s terms.

If they don’t pay the named beneficiary, they risk legal liability. They won’t risk paying someone not listed on the form just because that person appears in a will.

The U.S. Supreme Court has reinforced this principle in multiple rulings (we’ll cover those shortly). The consistent theme is that the plan must follow what its documents say, and the beneficiary designation is part of those plan documents.

Another reason federal law takes priority is the concept of preemption. ERISA has a broad preemption clause, meaning that it overrides any state law that “relates to” an employee benefit plan (with some narrow exceptions).

This is important for beneficiary issues – it means if a state law or even a state court judgement would change who gets the 401(k), ERISA can trump it.

For example, some state laws try to automatically revoke an ex-spouse as a beneficiary after divorce. But ERISA will generally preempt those laws for a 401(k) plan, so the plan still pays the ex-spouse if they remain the named beneficiary (unless the participant changed the form).

Federal law’s dominance in this area ensures uniformity – a retirement plan can operate under one set of rules nationally, rather than 50 different state rules on inheritance.

It’s worth noting that trillions of dollars are held in retirement accounts subject to these federal rules. This is not a small issue – it affects a huge portion of Americans’ wealth.

The aim of the federal regulations is to make sure the money goes where the account owner intended (as shown by the beneficiary form), and to do so efficiently without getting tied up in probate. So from the federal law perspective, the will is simply not involved in passing on your 401(k). The beneficiary form is what counts.

Spousal Rights Under Federal Law (ERISA)

There’s one big wrinkle to beneficiary designations on 401(k)s: spousal rights. If you’re married, federal law gives your spouse special protection with regard to your 401(k).

Under ERISA (as strengthened by the Retirement Equity Act of 1984), your spouse is typically the automatic beneficiary of your 401(k) plan. If you want to name someone other than your spouse as the beneficiary, your spouse must formally consent in writing (usually with a notarized signature) to waive their right.

This rule is meant to protect spouses from being unintentionally disinherited from retirement funds.

So, does a will override a beneficiary on a 401(k) in favor of a spouse? In practice, if you’re married, you likely can’t even name someone else on the 401(k) without your spouse’s permission.

If you attempted to list, say, a child or a sibling as your 401(k) beneficiary without your spouse’s consent, the plan will default to your spouse despite what the form says.

For example, suppose John is married to Jane, but John secretly names his brother as the beneficiary on his 401(k) without telling Jane. If John dies, Jane (the spouse) will have the right to the 401(k) money, not the brother.

The plan is required by law to pay Jane, because she never consented to John’s choice of another beneficiary. In this scenario, the spousal protection rules override the improper beneficiary designation – but that’s a function of federal law and the plan’s rules, not because of a will.

It’s important to clarify: these spousal rights are built into the 401(k) plan rules under federal law, not part of your will.

A will has no effect on this either – even if John’s will said “leave my 401(k) to my brother,” Jane’s legal right as a surviving spouse would still secure her the account (again, because John failed to get her consent to name someone else).

The only way to validly leave your 401(k) to someone other than your spouse is with your spouse’s signed waiver. Once that waiver is in place, you’re free to designate a non-spouse beneficiary. But without it, the spouse’s claim is ironclad under ERISA.

One more note: If you’re not married (single), you have full freedom to name whomever you want as 401(k) beneficiary, and you can change it at any time by updating the form with your plan administrator.

If you later get married, many plans will automatically make your new spouse the beneficiary by law, overriding any prior designation (some plans give you a period to re-designate, but if not, the spouse typically jumps to the front unless they waive it).

Thus, federal law prioritizes the current spouse above all. Keep this in mind if you’ve had changes in marital status – always check and update your 401(k) beneficiary form accordingly.

The Role of Plan Administrators, Financial Institutions, and the IRS

Let’s talk about the practical side: who actually carries out these rules. Plan administrators (often your employer or a company they appoint, sometimes a major financial institution like Fidelity, Vanguard, or T. Rowe Price) are responsible for managing the 401(k) plan and enforcing the rules.

When you pass away, the plan administrator will look up your beneficiary designation on record. They will not typically ask for your will or try to interpret your estate plan – that’s not their job.

Their job is to follow the plan’s documents (which includes that beneficiary form and federal law requirements). Major financial institutions that serve as plan custodians have clear policies: they distribute the account to the named beneficiary once proper proof of death and identification are provided.

The IRS (Internal Revenue Service) also comes into play, but in terms of tax rules rather than deciding who gets the money. The IRS sets guidelines on how retirement accounts can be distributed after the owner’s death.

For example, a spouse beneficiary has options like rolling the 401(k) into their own IRA (maintaining tax deferral), whereas a non-spouse beneficiary might have to take distributions within a certain number of years (the “10-year rule” under current law, unless they qualify as an eligible exception).

These are tax implications that make it even more important to plan ahead. If an estate (via a will) becomes the recipient of a 401(k) because no beneficiary was named, the IRS rules typically force a faster payout of the funds (often within 5 years or less if the account wasn’t already in payouts), which can result in a big tax hit sooner.

This is one reason naming individual beneficiaries (or a trust) is usually wiser than letting a 401(k) fall to your estate.

It’s worth noting that plan administrators must adhere to IRS and ERISA guidelines to keep the plan’s tax-qualified status. This means following the proper beneficiary payout rules (like prioritizing a surviving spouse) and documenting everything.

When you update your beneficiary, the plan administrator will usually send you a confirmation and keep it on file. That record is gold when determining who gets the account.

Neither the IRS nor the plan custodian is going to side with what a will says over what their records say.

If they did, they could face legal challenges from the rightful beneficiary or even penalties. So the system is set up to make the beneficiary designation the clear guiding light, backed by federal law.

State Law Nuances: Does Your State Matter for 401(k) Beneficiaries?

Given ERISA’s broad reach, you might wonder: do state laws have any say in who gets your 401(k)? Generally speaking, state laws have very limited influence on 401(k) beneficiary issues, because federal law overrides state law in this arena.

However, there are a few state-specific nuances to be aware of, especially in scenarios outside the typical or when dealing with accounts not covered by ERISA. Let’s break down a few:

1. “Revocation-on-Divorce” Laws:

Many states have laws that if you get divorced, any mention of your ex-spouse in your will or as beneficiary on certain accounts is automatically revoked (as if the ex-spouse predeceased you).

These laws are meant to prevent an ex from inadvertently benefiting if you forget to change documents after a divorce.

For example, Minnesota’s law (similar to a provision in the Uniform Probate Code adopted by several states) would remove an ex-spouse as beneficiary from life insurance or IRAs upon divorce.

However, for 401(k) plans, these state laws are preempted by ERISA. A famous case on this involved a man in Washington state who died with his ex-wife still named as beneficiary on his ERISA-governed pension.

Washington law would have kicked the ex-spouse off the beneficiary list due to their divorce. But the U.S. Supreme Court, in Egelhoff v. Egelhoff (2001), ruled that ERISA preempted that state law. The result: the ex-spouse still inherited the pension, and the children (whom the state law would have benefited) did not.

The takeaway is clear – divorce does not automatically remove an ex-spouse as 401(k) beneficiary unless you take action under the plan’s rules (or the ex waives rights in a way the plan recognizes).

If you don’t want an ex to get your 401(k), you must update your beneficiary form after a divorce. Don’t rely on state divorce statutes to save you.

2. Community Property States:

If you live in a community property state (such as California, Texas, Arizona, Washington, Idaho, Nevada, New Mexico, Louisiana, or Wisconsin), the law generally says that any assets acquired during marriage are jointly owned by both spouses.

This can complicate the question of who “owns” a 401(k) balance. Technically, contributions made to a 401(k) during marriage might be half your spouse’s property under state law. Does that mean you can only give away half, or that your spouse can claim half if they weren’t named the beneficiary?

Normally, if a married person in a community property state tries to name someone other than the spouse as beneficiary without consent, the federal spousal consent rule we discussed already covers it – the spouse would have had to sign off.

If somehow no consent was given, the surviving spouse can assert their community property rights. But courts have generally found that ERISA still controls the payout.

In one landmark case, Boggs v. Boggs (1997), the Supreme Court held that a deceased spouse could not use state community property law to bequeath (by will) part of her husband’s ERISA-governed pension to their children, because that conflicted with the surviving spouse’s rights under ERISA. Essentially, ERISA trumped community property claims in that context.

In practice, community property might come into play after distribution. For instance, if a spouse wasn’t properly consulted and someone else got the 401(k) money, the spouse might sue that person for their community property share. Some state courts have seen cases like this.

But often, courts will still side with the idea that federal law’s process must be respected, and these disputes can become complex. The simpler solution is, if you’re in a community property state, always obtain spousal consent when required and be clear about your beneficiary choices.

That avoids post-mortem battles. It’s also good to know that in community property states, even IRAs (which aren’t under ERISA) may require the spouse’s written consent to name someone else, by virtue of state law. So regardless, the spouse is central when it comes to retirement assets in these states.

3. State Inheritance and Probate Laws:

Apart from divorce and community property issues, most other state inheritance laws don’t affect 401(k) beneficiaries.

For example, states have “elective share” or “forced heirship” rules allowing a surviving spouse to claim a portion of the estate if left out of a will. But a 401(k) passed by beneficiary designation doesn’t typically count as part of the probate estate subject to an elective share (some states have expanded definitions of estate for this purpose, but if it directly conflicts with ERISA, again, ERISA wins).

Also, if you name your estate as the beneficiary of a 401(k) (which is generally not advisable), then the account becomes part of your probate estate and state law will dictate how it’s distributed (via your will or, if no will, via intestacy laws).

In that scenario, the will would govern who gets the 401(k) funds because the estate received them first – but that’s because you effectively directed the 401(k) into the estate by naming it as beneficiary.

The will isn’t “overriding” the beneficiary; it’s being honored because the estate was the beneficiary. This is a rare case where the will and beneficiary designation align (estate as beneficiary), and it does put the asset through probate.

4. Notable State Distinctions: While 401(k) plans are mostly uniform nationwide due to ERISA, it’s useful to be aware of your own state’s approach to related matters. For example, Texas and California (community property states) emphasize spousal consent and community interests, but, as noted, federal law will guide the plan’s payout.

Florida (a common law state) doesn’t require spousal consent for IRAs or life insurance, but for a 401(k) it follows federal law (so spouse gets priority).

New York has an elective share that can pull some non-probate assets into calculation, but an ERISA plan would likely be excluded.

Arizona has a law similar to others that revokes ex-spouse designations on non-ERISA accounts at divorce, but again not applicable to ERISA plans.

The key is: if you hear about a state rule that “automatically” does something with beneficiaries, check if your account is ERISA-covered. If it is (401(k)s, corporate pensions, etc.), assume federal law is in the driver’s seat.

State nuances around wills and beneficiaries mostly come into play for assets like IRAs, life insurance, or property – not so much for 401(k)s.

For your 401(k), federal law preempts state law in nearly all contentious situations. That’s why you must proactively handle beneficiary designations and not rely on state default rules or your will.

However, it’s wise to coordinate with state law in the sense of overall estate planning – for example, understanding your state’s rules on marital property or how your state handles an estate when someone dies without updating documents.

This helps ensure there are no unpleasant surprises or legal fights among your heirs.

Real Court Cases: Wills vs. 401(k) Beneficiary Designations

To drive home how these rules play out, let’s look at some notable court cases and real-world examples where a will (or other attempt) tried to conflict with a 401(k) beneficiary designation. These cases highlight the legal outcomes and lessons learned:

• Egelhoff v. Egelhoff (2001) – This U.S. Supreme Court case involved David Egelhoff, who had a life insurance policy and pension (ERISA-governed) through his employer. He named his wife as beneficiary. They divorced, but he did not update his beneficiary forms. Shortly after, he died in a car accident. His children from a prior marriage argued that a Washington state law (which says ex-spouses are automatically removed as beneficiaries upon divorce) should give them the money, not the ex-wife. The Supreme Court ruled that ERISA preempted the state law, so the plan had to pay the ex-wife, because she was still the named beneficiary. It didn’t matter that state law or presumably even his unwritten intent might have been otherwise. This case underscores that the named beneficiary gets the asset, even if divorce happened, unless the participant actively changes the designation or there’s a QDRO (qualified domestic relations order) during the divorce dividing the plan.

• Kennedy v. Plan Administrator for DuPont (2009) – This Supreme Court case addressed whether a divorce decree (a legal court order during a divorce) could effectively waive an ex-spouse’s rights to a 401(k) when the ex was still the named beneficiary on the plan. William Kennedy had a DuPont 401(k) and named his wife Liv as beneficiary. They divorced, and in the divorce agreement Liv waived any claim to William’s retirement benefits. However, William never updated the 401(k) beneficiary form (Liv remained on it). When he died, his daughter (as executor) argued that the account should go to William’s estate (and then to the daughter via will), since Liv had waived her rights. The plan administrator, following the form, gave the 401(k) funds to the ex-wife Liv. The Supreme Court unanimously upheld that decision. The Court said the plan must follow the documents on file (the beneficiary form) and ignore external documents like a will or even a divorce decree waiver when it comes to paying out. Any waiver by the ex-spouse could only be enforced against the ex-spouse personally (for instance, the estate could potentially sue Liv after the fact to recover the money based on the contract between them). But as far as the 401(k) plan was concerned, Liv was the beneficiary on record, so she got the money. The lesson from Kennedy is clear: Even a legal agreement in a divorce didn’t stop the named beneficiary from inheriting the 401(k). Only changing the beneficiary form (or obtaining a proper QDRO during the divorce process) would have prevented that outcome.

• Boggs v. Boggs (1997) – In this Supreme Court case, the issue was community property and wills intersecting with ERISA. A man named Isaac Boggs worked and earned a pension (ERISA plan) during his first marriage. His first wife, Dorothy, died before Isaac. In her will, Dorothy tried to leave her half-interest in Isaac’s pension (as community property in Louisiana) to their children. Years later, Isaac retired and then died, being survived by his second wife. The children from the first marriage and the second wife got into a dispute over who should get the pension benefits. The Supreme Court held that ERISA preempted the Louisiana community property law that would have allowed Dorothy to will away her share. As a result, the second wife (the surviving spouse) was entitled to the pension benefits, and the children did not get the part their mother had attempted to bequeath. This case shows that even a valid will under state law cannot transfer an ERISA-governed retirement benefit if it conflicts with the plan’s rules and federal spousal protections. The surviving spouse’s right under federal law could not be defeated by the first spouse’s will.

• Procter & Gamble vs. Estate of Rolison (2024) – In a more recent federal case (cited in estate planning circles as a cautionary tale), a man named Jeffrey Rolison had a 401(k) from his longtime employer (P&G). In 1987, when he enrolled in the plan, he named his then-girlfriend as the sole beneficiary. They broke up in 1989, and life went on – he never changed the beneficiary designation. Decades later, Rolison passed away, never having married and apparently without updating that form. His will (and estate) might have intended to leave assets to relatives, but because the old girlfriend was still the named beneficiary on the 401(k), she had a claim. The case ended up in court when Rolison’s estate challenged the payout, but the court upheld the beneficiary designation. The judge noted that Rolison had ample opportunity and even reminders to change his beneficiary but failed to do so, therefore the plan correctly paid the funds to the (now long-estranged) ex-girlfriend. The outcome: the ex-girlfriend inherited the 401(k), not the estate or family. This real-world example highlights how forgetting to update your beneficiary forms can lead to unintended people inheriting your money. It’s a perfect example of that “accidental inheritance” we mentioned earlier. Always review and update your beneficiaries after major life changes (breakups, marriages, deaths of beneficiaries, etc.) to avoid this scenario.

• Other Cases and Examples: There have been numerous other cases reinforcing the same points. Often, litigation arises when a will, trust, or family members try to claim an account saying “he really wanted us to have it” or “the will says X should get everything,” but the courts nearly always side with the clear beneficiary designation on the account. In some instances, courts have imposed constructive trusts or other remedies after the fact (for example, if a named beneficiary was found to have engaged in wrongdoing, or as mentioned, if an ex-spouse had contractually waived the money, a court might order them to turn it over to the intended party). But these are exceptions and involve separate legal actions. When it comes to the initial question of who the plan should pay, the answer is almost invariably: pay the named beneficiary on file.

These cases collectively teach us a few key lessons:

• Keep your beneficiary designations up to date – it’s the only way to ensure your 401(k) goes where you want.
• Don’t rely on a will or court later to fix beneficiary issues – courts uphold the forms in almost all circumstances.
• Be mindful of marriage and divorce – spouses have special rights, and ex-spouses can unintentionally remain beneficiaries if you’re not careful.
• Communicate and document – if you intend a certain person to have your 401(k), make sure the paperwork reflects that, and if a divorce or other agreement says someone shouldn’t get it, follow through with updating forms or obtaining proper legal orders.

Estate Planning Strategies Beyond Just Wills and Beneficiary Forms

Given that a will won’t override a 401(k) beneficiary designation, how can you ensure your retirement account is passed on according to your wishes? Good estate planning takes a holistic approach.

It’s not just about writing a will and forgetting it. You need to coordinate your will with beneficiary forms, trusts, and other tools. Here are some expert-level estate planning strategies to consider for retirement accounts:

Keep Beneficiary Designations Up-to-Date ✅

This sounds simple, but it’s incredibly important. Review and update your 401(k) beneficiary designation regularly, especially after any major life event.

Marriage, divorce, the birth of a child, the death of a previously named beneficiary, or even a significant change in your relationship with someone should all trigger an update.

Remember, people often open a 401(k) early in their career and might not think about it for decades. It’s common to find an outdated beneficiary like a parent or former partner still on file.

Set a reminder to check your beneficiary forms every couple of years. Many financial institutions allow you to verify and update beneficiaries online now, making it easier.

By keeping this information current, you ensure that your 401(k) reflects your present wishes, so that no matter when something happens, the right person (or people) will inherit the account directly.

When updating, also be sure to specify contingent beneficiaries – these are the “backups” in case your primary beneficiary predeceases you or cannot inherit. For example, you might list your spouse as primary and your two children as contingent beneficiaries (split, say, 50/50).

That way, if your spouse isn’t alive to inherit, your kids will get the funds. If you fail to name contingents and your primary beneficiary has passed or you are no longer associated (like an ex-spouse in some cases), then the 401(k) might end up going to your estate by default, which we generally want to avoid. Naming a contingent ensures a smoother transition and keeps control in your hands.

Coordinate Wills, Trusts, and Beneficiaries Together

An effective estate plan makes sure all the pieces work together. Think of your will, 401(k) beneficiary forms, life insurance, and any trusts as parts of one puzzle.

You don’t want one piece contradicting another. For instance, if your will sets up a trust for your children, you might want your 401(k) beneficiary to actually be that trust (more on that in a moment) rather than naming the kids outright, especially if they’re minors.

Or if your will leaves everything to your spouse, you still want to have your spouse listed on the beneficiary forms for accounts like the 401(k) to mirror that intent (plus it avoids probate). Inconsistencies can lead to confusion or even legal challenges by disappointed heirs.

Communication is key too. Talk with your estate planning attorney and financial advisor about your intentions. Make sure they know about all your accounts and how each is set to transfer.

It’s wise to maintain a list of all accounts with their current designated beneficiaries so you can cross-check against your will or trust provisions.

Many people create a revocable living trust as part of their estate plan to avoid probate – however, retirement accounts like 401(k)s are usually not retitled into a living trust during your lifetime (for tax reasons), but you can name the trust as a beneficiary upon death.

If you do that, it should be a deliberate decision made with professional advice, ensuring the trust is appropriately drafted to receive retirement funds without adverse tax consequences.

In short, think of a will as one tool in your toolkit, and beneficiary designations as another. They should complement each other. For assets that pass by beneficiary (like 401(k)s), the will can act as a safety net or to cover any residue, but the primary direction comes from the beneficiary form itself.

Align them so that no matter which document is looked at, it’s clear who you wanted to benefit.

Consider Trusts for Complex Situations 🏦

Wills and beneficiary forms might not cover every scenario ideally. If you have a more complex situation – such as minor children, children from a previous marriage, a loved one with special needs, or concerns about a beneficiary’s ability to manage money – a trust can be a valuable tool.

You cannot place a 401(k) into a trust while you’re alive (the account must stay in your name). But you can name a trust as the beneficiary of your 401(k) so that when you pass, the 401(k) funds flow into the trust. Once in the trust, the trustee can manage and distribute the money according to the terms you set.

For example, if you have young children, you might not want them inheriting a large 401(k) balance outright at age 18. By naming a children’s trust as beneficiary, the account can be managed and used for their benefit (education, support, etc.) until they reach an age you specify for full distribution, or perhaps in stages.

The trust can also protect assets from being squandered or from creditors in some cases.

Similarly, if you have a second marriage and want to provide for your current spouse but also ensure any leftover funds go to your kids from a first marriage, you could use a trust (often called a “QTIP trust” or a specific retirement trust) to give your spouse income from the 401(k) assets during their life and then pass the remainder to your children.

It’s important to create the right kind of trust if it will be the beneficiary of a retirement account. Trusts that qualify as “see-through” or “look-through” trusts under IRS rules can stretch the distributions in certain ways (subject to the 10-year rule or life expectancy payouts for eligible beneficiaries under current law).

A trust that isn’t set up correctly could end up having to take the 401(k) payout immediately or within 5 years, causing a big tax burden. So, work with an estate planning attorney knowledgeable in retirement plan trusts if you go this route.

Special types often used include a conduit trust (which passes required distributions out to beneficiaries) or an accumulation trust (which can hold onto distributions under strict rules).

These are advanced strategies, but they ensure that even though a trust stands in for a human beneficiary, your retirement money can still be managed as you intend.

One more note: some people consider naming a revocable living trust (their main family trust) as the beneficiary of a 401(k). This can be done, but it must be carefully weighed. Sometimes it’s simpler to just name individuals directly if trusts aren’t needed for them.

On the other hand, if you already have provisions in your trust for what happens with your assets, naming the trust can consolidate everything.

Tax advice is crucial here – the Secure Act changed how inherited retirement accounts are handled, so make sure the strategy you choose is tax-efficient for your heirs.

Don’t Name Your Estate as Beneficiary (If You Can Help It) 🚫

A common estate planning recommendation is to avoid naming your estate as the beneficiary of your 401(k) (or any retirement account, for that matter).

If you list “my estate” or you simply fail to list anyone at all, what happens is the 401(k) money will funnel into your estate. This means it will be governed by your will (or by state intestacy law if you have no will). While that sounds straightforward, it has several downsides:

• Probate: The funds will be tied up in the probate process, which can be time-consuming and costly. One of the great advantages of having a beneficiary on an account is avoiding probate. By naming the estate, you lose that benefit.
• Delayed Access: Your heirs might need funds immediately (for funeral costs or support), but if it’s in probate, they could wait months or more before the court releases the money.
• Tax Disadvantages: When a non-person (like an estate or a non-qualifying trust) inherits a retirement account, the IRS typically requires faster payout of the entire account. Often, an estate must distribute the retirement account within 5 years (if the owner died before starting required minimum distributions) or continue taking any required distributions on the owner’s schedule if they already began them. Either way, it’s usually faster than a spouse or individual could do it. Faster payout = larger amounts taxed sooner, possibly at higher rates. Individual beneficiaries often have more flexibility (and spouses have the most flexibility of all).
• No Stretch or Limited Options: Post-2019, even individual beneficiaries mostly have a 10-year window to withdraw everything (with some exceptions for spouses and a few others). But an estate doesn’t even get that 10-year option in many cases. This forces liquidation, whereas a named individual might have been able to spread it out a bit more or do a spousal rollover.

Because of these issues, it’s generally recommended to name a person or a trust (that is designed to handle it) rather than the estate. Sometimes people think naming the estate will make it easier to “handle in the will” where they’ve laid out detailed plans.

But those plans could have been derailed simply by the fact that the money got to the estate at all. A smarter approach: if you have detailed plans, implement them via a trust or clear beneficiary designations.

That said, what if you really have no one to name or you want the funds to go to a cause? If you’re charitably inclined, naming a charity directly as a beneficiary is an option (and actually tax-efficient, since charities don’t pay tax on it).

If you have no individual and charity isn’t a choice, then by default it will go to your estate and be distributed per your will. Just be aware of the consequences above. In any event, avoid the estate as beneficiary unless it’s truly necessary or part of a deliberate strategy by your advisor.

Use Additional Documents for Specific Circumstances

Beyond wills and trusts, a few other estate planning techniques can help ensure your 401(k) aligns with your wishes:

• Prenuptial/Postnuptial Agreements: If you’re getting married (or remarried) and you want to specify what happens with your retirement accounts, a prenup can detail that your new spouse will consent to you naming someone else as beneficiary, or vice versa. Keep in mind, even with a prenup, the plan will still require an actual spousal consent at the time, but the agreement can obligate the spouse to do so. This is useful in second marriage situations where both partners have their own children and want their retirement accounts to ultimately go to those children.
• Qualified Domestic Relations Orders (QDROs): In a divorce, if both parties agree, a QDRO can be used to split or assign a portion of a 401(k) to an ex-spouse (or even a child or other dependent for support) as part of the settlement. This is a way to legally redirect part of a retirement account. It’s not a will or beneficiary form per se; it’s a court order that the plan will honor because QDROs are specifically exempt from ERISA preemption. After a divorce, if a QDRO wasn’t done and you no longer want your ex on the account, update the beneficiary form immediately.
• Beneficiary Disclaimers: This is more after-the-fact, but if a beneficiary wants to refuse the money (for example, a spouse might disclaim so that the account passes to contingent beneficiaries like children, which can be a tax or estate strategy), they have that right. You can’t force someone to disclaim via a will – it’s their personal decision after you die – but knowing this tool exists can help your family carry out tax-efficient moves. For instance, a well-off spouse might disclaim an inherited 401(k) so it goes to the kids who are in lower tax brackets.
• POD/TOD Accounts and Other Non-Probate Assets: While not directly about 401(k)s, remember that similar principles apply to any account with a “Payable on Death” or “Transfer on Death” designation (common for bank or brokerage accounts). They bypass the will and go to the named person. So include these in your estate plan review too. Make sure all these designations (retirement accounts, life insurance, POD accounts) align with your plan. They often outvalue what’s going through the will.

Talk to the Right Professionals 🏷️

401(k) beneficiary questions sit at the intersection of legal, financial, and tax issues. It can be invaluable to consult with professionals:

• An Estate Planning Attorney can draft wills, trusts, and advise on beneficiary designations consistent with your goals and state/federal law.
• A Financial Planner or advisor can help you keep track of all your account beneficiaries and suggest strategies (like perhaps doing Roth conversions or life insurance to complement your estate plan).
• The Plan Administrator or HR benefits specialist at your workplace can provide the proper forms and explain your 401(k) plan’s specific rules (some have quirks on how to name a trust, or how many beneficiaries you can list, etc.).
• The IRS and Tax Professionals can advise on the tax impact of naming different beneficiaries (spouse vs. non-spouse vs. charity vs. estate).

For example, if you plan to name a trust, an attorney can ensure the trust language meets IRS requirements. If you intend to benefit a charity and family members, a planner might advise leaving traditional 401(k) assets to charity (for no tax hit) and other assets to family. Each decision can have ripple effects.

The bottom line is, don’t leave it to chance or assumption. A little bit of planning and consultation can save your heirs from headaches or heartaches later. It can also maximize the value they receive by minimizing taxes and delays.

Quick Comparison: Will vs 401(k) Beneficiary Outcomes

To summarize, here’s a quick-hit comparison of how a will versus a 401(k) beneficiary designation plays out in common scenarios:

As you can see, in virtually every scenario where there’s a conflict between a will and a 401(k) beneficiary form, the beneficiary form wins out. The only time a will plays a direct role is if no beneficiary is alive or named (then the account goes into the estate and the will can govern it). The smart approach is to make sure that situation doesn’t happen unintentionally.

FAQs: Answers to Common Questions on Wills vs 401(k) Beneficiaries

Q: Does a beneficiary designation override a will?
A: Yes. In almost all cases, the person or entity listed as beneficiary on accounts like a 401(k) or life insurance will receive that asset, even if the will says otherwise.

Q: Can I use my will to change my 401(k) beneficiary?
A: No. A will cannot change or override the beneficiary listed on your 401(k). To change your 401(k) beneficiary, you must submit an updated form to your plan administrator.

Q: What happens if I have no beneficiary named on my 401(k)?
A: If no beneficiary is on file (and you haven’t updated it), most 401(k) plans will direct the account to your estate by default (or to a default like your spouse, if applicable). It then goes through probate.

Q: Does my spouse automatically get my 401(k) when I die?
A: If you’re married, your spouse is usually the automatic 401(k) beneficiary under federal law, unless they’ve signed a waiver and you named someone else. Without a signed consent, the spouse will inherit the 401(k).

Q: Can I name someone other than my spouse as 401(k) beneficiary?
A: Yes, but only if your spouse formally consents in writing (notarized). Without that consent, the plan will pay your spouse regardless of the form. If you’re unmarried, you’re free to name anyone.

Q: What if my will leaves everything to my children, but my 401(k) form still has my ex-spouse?
A: Your ex-spouse will likely get the 401(k) funds if they’re still the named beneficiary (per ERISA rules). Your will won’t matter for the 401(k). It’s critical to update your beneficiary after a divorce.

Q: Should I name a trust as the beneficiary of my 401(k)?
A: It depends. For minor children or special situations, a trust can be a good idea to manage the money. Just ensure the trust is properly structured for retirement assets. For straightforward cases, naming individuals directly is simpler.

Q: Do 401(k) accounts go through probate?
A: Not if a valid beneficiary is named. The account passes directly to that beneficiary, bypassing probate. If the estate is the beneficiary (or no beneficiary), then it will go through probate.

Q: Can a beneficiary designation be contested?
A: It’s difficult. Generally, beneficiary designations are binding. They can occasionally be challenged for reasons like fraud, duress, or if a later valid form was misfiled. Such challenges are rare and hard to win.

Q: Is a 401(k) considered part of my estate?
A: For probate purposes, not if it has a named beneficiary (then it’s outside the probate estate). However, for tax purposes, it’s included in your gross estate value. But distribution follows the beneficiary form, not the will.

Q: If I name multiple beneficiaries, can my will change their shares?
A: No. Any percentages or allocations on the 401(k) beneficiary form will be followed exactly. Your will cannot alter those shares. If you want a different split, you must update the form itself.

Q: How often should I review my beneficiary designations?
A: Regularly – at least every few years, and certainly after any major life change (marriage, divorce, birth of a child, death of a beneficiary, etc.). This ensures your designations match your current wishes.

Q: Can I name my estate as 401(k) beneficiary on purpose?
A: You can, but it’s usually not recommended due to probate and tax drawbacks. Naming individual beneficiaries or a trust is typically more efficient and provides more options for those who inherit.

Q: Will my 401(k) beneficiary get the money immediately?
A: Generally, yes. Once you pass and the beneficiary provides proof (like a death certificate and ID), the plan can process a distribution or rollover. They won’t have to wait for probate if they’re directly named.

Q: Does a will have any effect on retirement accounts or life insurance?
A: No, not if those accounts have their own beneficiaries. Wills cover assets that don’t have a designated beneficiary or co-owner. Retirement accounts and life insurance pay out according to their beneficiary forms.