Who Really Inherits a 401(k) After Death? – Avoid This Mistake + FAQs

Your 401(k) will pass to the person (or people) you designated as beneficiary upon your death, with your surviving spouse typically having the first claim by law if no other beneficiary is named.

When a 401(k) account holder dies, the funds in the account don’t just vanish. They are transferred to one or more beneficiaries according to specific rules. In most cases, the account owner names these beneficiaries in advance.

If you’re married, federal law usually ensures your spouse is the default heir unless you’ve formally chosen someone else with your spouse’s consent.

If no valid beneficiary is on file, the 401(k) might end up in your estate and go through probate, which is a court process that can delay distribution.

Key Terminology & Definitions

Planning for who inherits your 401(k) means navigating some specific legal and financial terms. Here are the key concepts defined:

• 401(k) Plan: A 401(k) is an employer-sponsored retirement savings plan that lets you contribute part of your salary pre-tax (or post-tax in a Roth 401(k)). It’s governed by federal law and by the rules of the employer’s plan. Importantly, a 401(k) allows you to name beneficiaries who will receive the account balance if you die.
• Beneficiary: A beneficiary is any person or entity you choose to receive your 401(k) after your death. This could be a spouse, child, other relative, friend, a trust, or even a charity. You usually designate beneficiaries when you set up the 401(k) and can change them by submitting an updated form to your plan administrator at any time.
• Primary vs. Contingent Beneficiary: A primary beneficiary is the first in line to inherit your 401(k). You can name more than one primary beneficiary and allocate percentages of your account to each (they must total 100%). A contingent beneficiary (secondary beneficiary) is a backup who inherits the 401(k) only if all primary beneficiaries have died before you (or decline the inheritance). For example, you might name your spouse as primary beneficiary and your child as contingent beneficiary—meaning the child inherits the account only if your spouse cannot.
• Spousal Consent/Waiver: If you’re married, spousal consent is a written, notarized waiver your spouse must sign if you want to name someone other than them as the primary beneficiary of your 401(k). Federal law gives spouses a default right to inherit a 401(k), so this consent is needed to legally bypass a spouse in favor of another beneficiary.
• Estate: Your estate is the legal entity that comprises all your assets at death. If a 401(k) has no living designated beneficiary, its balance may become part of your estate. That means it would be distributed according to your will or, if there’s no will, via state intestate succession laws. Having the 401(k) go to the estate usually requires probate court proceedings, which can be time-consuming.
• Probate: Probate is the court-supervised process of validating a will (if one exists) and distributing a deceased person’s estate to heirs. Assets like 401(k)s that have a named beneficiary typically avoid probate because they transfer directly to the beneficiary by contract. However, if no beneficiary is named (or the beneficiary predeceases you and no alternate is designated), the 401(k) funds could go through probate as part of the estate.
• ERISA: The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that governs most employer-sponsored retirement plans, including 401(k)s. ERISA sets rules for how 401(k) plans must operate, including protecting surviving spouses and ensuring the plan pays out benefits according to the plan documents (like your beneficiary form). It also generally supersedes state laws regarding 401(k) plans when there’s a conflict.
• Required Minimum Distribution (RMD): This term refers to mandatory withdrawals that certain beneficiaries must take from an inherited retirement account. While RMD rules affect how and when the beneficiary can withdraw money (and pay taxes on it), it’s good to know the concept. For example, a spouse beneficiary has different (often more favorable) RMD options than a non-spouse beneficiary, especially after recent laws like the SECURE Act.
• SECURE Act: The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a federal law (effective 2020) that changed how inherited retirement accounts are handled. Notably, it requires most non-spouse beneficiaries to withdraw all funds from an inherited 401(k) or IRA within 10 years of the original owner’s death. This affects how the inherited 401(k) can be used by the beneficiary (faster distributions), but not who inherits it. It’s context that influences beneficiaries’ financial planning.
• Probate vs. Non-Probate Asset: A 401(k) with a named beneficiary is a non-probate asset, meaning it transfers by the plan contract outside of any will. In contrast, assets distributed under a will or by intestacy (like if a 401(k) goes to the estate) are probate assets. This difference matters because non-probate transfers are typically faster and involve less court oversight.

These terms form the foundation for understanding 401(k) inheritance. With definitions in hand, let’s examine the laws that determine who actually gets your 401(k) when you’re gone.

Federal Laws Governing 401(k) Inheritance

Federal law plays the dominant role in deciding who inherits a 401(k), primarily through ERISA and the Internal Revenue Code. Here are the key federal rules:

Spousal Inheritance Rights (ERISA Requirements)

Under federal ERISA law, if you are married, your spouse has strong inheritance rights over your 401(k). In fact, most 401(k) plans require that the surviving spouse automatically be the primary beneficiary unless the spouse has signed a consent waiver allowing someone else to be named. This means if you die and you’re married, your spouse is first in line to inherit your 401(k) by default.

For example, suppose you filled out a beneficiary form when single naming a sibling, but then you got married and never updated it. In many cases, your new spouse would legally be entitled to the account (the plan may even override the old designation) unless that spouse waived their right in writing. The Retirement Equity Act of 1984 (a federal law that amended ERISA) cemented these spousal protections.

Beneficiary Designation Forms Rule

Federal law also emphasizes that 401(k) plans must pay out according to the written beneficiary designation on file with the plan. Sometimes called the “plan documents rule,” essentially whatever your most recent signed beneficiary form says goes. It doesn’t matter if your will or trust says something different, nor what verbal promises you may have made — the plan administrator is legally obligated to follow the plan documents (the beneficiary form).

The U.S. Supreme Court has underscored this principle in multiple cases. In Egelhoff v. Egelhoff (2001), the Court ruled that a state law which would have automatically voided an ex-spouse’s beneficiary status upon divorce was preempted by ERISA, so the ex-spouse remained the beneficiary. In Kennedy v. Plan Administrator for DuPont (2009), the Court similarly held that a 401(k) had to be paid to the ex-wife named as beneficiary, even though a divorce decree said she waived her rights, because the account owner never updated the form.

These cases make it clear that the beneficiary designation on file will override wills, state laws, or other agreements.

Tax Rules and the SECURE Act

Federal tax law (through IRS rules) determines how an inherited 401(k) can be used by the beneficiary, which indirectly influences inheritance considerations. The SECURE Act of 2019 (effective Jan 1, 2020) requires that most non-spouse beneficiaries withdraw the entire balance of an inherited 401(k) within 10 years of the owner’s death.

Spouses, however, have special options: a surviving spouse can roll the 401(k) into their own IRA or 401(k), or otherwise delay distributions until they reach their own retirement age. There are also exceptions for certain beneficiaries classified as “Eligible Designated Beneficiaries” (such as a minor child of the decedent, or a disabled/chronically ill individual, or an individual close in age to the decedent), who can stretch distributions over longer periods.

While these rules don’t change who inherits the account, they are important for understanding the consequences for different types of beneficiaries. In essence, spouses are favored not only in who inherits but also in how the funds can be treated after inheritance (more flexibility and deferral options). Non-spouse heirs will need to plan for a faster payout (and the resulting taxes) within a decade of inheritance.

ERISA Preemption of State Law

A critical aspect of federal 401(k) law is that it overrides conflicting state laws. ERISA contains a broad preemption clause: if a state law “relates to” an ERISA-covered plan’s terms, the federal rules win out. This means state attempts to dictate 401(k) inheritance are generally thwarted by ERISA.

For example, some states have laws that automatically revoke an ex-spouse’s right to be a beneficiary upon divorce. However, for an ERISA 401(k), those state laws won’t apply (as seen in the Egelhoff case above). Similarly, state community property rules (which might give a spouse a claim to half the account) cannot force a 401(k) plan to pay someone not named on the beneficiary form. The plan will follow federal law and its documents, not state inheritance statutes.

In short, no matter what state you live in, the baseline rules for who inherits a 401(k) are set by federal law. State law might fill in some gaps or create expectations (which we’ll discuss next), but it cannot override an ERISA plan’s beneficiary rules.

State-Specific Variations

Although federal law dominates 401(k) inheritance, state laws can still have an impact in certain situations. Here are some state-specific nuances to be aware of:

Community Property States

If you live in a community property state (such as California, Texas, Arizona, etc.), state law generally says that assets acquired during marriage are jointly owned by both spouses. In theory, that includes retirement savings like a 401(k) earned during the marriage.

However, because 401(k) plans are under ERISA, a spouse’s rights to the account are primarily governed by federal law. Federal rules already ensure the spouse must be the beneficiary unless they waive it, which aligns with community property principles.

Where a conflict might arise is if a 401(k) owner tried to leave the account to someone else without the spouse’s consent: in a community property state, the surviving spouse could claim their half as a property right. Yet, thanks to ERISA preemption, the plan would still pay the named beneficiary.

The spouse would then potentially have to seek their community-property share by other legal means (for instance, suing the beneficiary for the share that was community property). These situations are rare because spousal consent is usually required upfront.

For example, the Supreme Court case Boggs v. Boggs (1997) dealt with a similar issue. In that case, a first wife attempted to will her community property interest in her husband’s ERISA-governed pension to their sons. The Court ruled that this was not allowed because it conflicted with the surviving second wife’s rights under federal law.

This underscores that even in community property states, ERISA’s rules protecting surviving spouses (and the plan’s beneficiary designations) take priority.

Divorce and Beneficiary Changes

Some states have laws that automatically revoke an ex-spouse’s right to inherit certain assets (like life insurance or retirement accounts) once a divorce is finalized. The idea is to prevent an ex from benefiting if someone forgets to update their beneficiary forms. However, for ERISA-covered 401(k)s, these state laws do not apply.

As noted earlier, if you divorce and don’t change your 401(k) beneficiary, an ex-spouse could still inherit the account because the plan will follow the last valid designation on file. The only effective way to ensure an ex-spouse doesn’t remain beneficiary is to update your beneficiary form upon divorce (or have a Qualified Domestic Relations Order during the divorce that awards the account or a portion of it to someone else).

In short, don’t rely on state law to automatically remove an ex-spouse from your 401(k) – federal law will stick with what the plan documents say.

Intestacy and Probate Rules

State laws govern what happens if a 401(k) ends up as part of your estate. If no beneficiary is designated (or no designated beneficiary is alive) and the plan’s default is to pay the estate, then the distribution of that money will follow your will or, if there’s no will, your state’s intestacy laws. Intestacy laws vary by state but generally prioritize closest relatives: typically spouse first, then children, then parents, then siblings, and so on down the family line.

However, once a 401(k)’s funds go into the estate, there are some downsides. The opportunity for any beneficiary to roll over the account or stretch out withdrawals is lost because the estate isn’t a “designated beneficiary” for tax purposes. Often the 401(k) funds paid to an estate must be withdrawn (and taxed) within five years or even immediately, then distributed to heirs as cash.

Additionally, going through probate means paying any applicable attorney’s fees, executor fees, and dealing with waiting periods and court filings, which can delay when your heirs actually receive the money.

Minor Beneficiaries and Guardianship

If a minor child is the beneficiary of a 401(k), state law dictates how that inheritance is handled because minors cannot legally control significant financial assets.

Typically, a court will appoint a guardian or custodian to manage the 401(k) funds on behalf of the minor until they reach adulthood (usually 18, or 21 in some states). Many states use the Uniform Transfers to Minors Act (UTMA) for this purpose, which allows a custodian to manage assets for a minor beneficiary without full court supervision, up to a specified age.

Alternatively, a parent planning their estate might establish a trust for the benefit of the minor and name the trust as the 401(k) beneficiary. In that case, when the 401(k) owner dies, the funds go into the trust (avoiding the need for a court-appointed guardian), and the trustee manages the money according to the trust instructions. This often gives more control over how and when the child gets the funds (for example, spreading it out over years, or using it for education).

The key point is: if you name a minor directly, there will be an extra layer of legal process (guardian or custodian) until the child is of age. Planning ahead with a trust or custodianship can streamline what happens.

State Inheritance Tax Considerations

A few states impose their own estate or inheritance taxes, which could affect the net amount beneficiaries receive. This doesn’t change who inherits the 401(k), but it can impact the value. For instance, if you live in a state with an estate tax and you have a large estate including your 401(k), the estate tax could indirectly reduce what the 401(k) beneficiary gets (since estate taxes might be paid out of the estate’s assets).

On the other hand, most states do not tax inherited 401(k) money beyond treating it as regular income when withdrawn. The main tax to consider for beneficiaries is usually federal (and state) income tax on distributions, not a separate inheritance tax.

In summary, state laws largely fill in the gaps for 401(k) inheritance: they handle what happens if a 401(k) goes to an estate, how minor heirs get their money, and other peripheral issues. But they do not override the central rule: the named beneficiary (with spouses having a federally mandated priority) will inherit the account. Now, let’s explore exactly who can inherit a 401(k) by looking at beneficiary rules in detail.

Who Can Inherit? Understanding Beneficiary Rules

A 401(k) is a versatile asset in terms of who you can leave it to. You can name almost anyone (or anything) as a beneficiary. This includes individuals like your spouse, children, other relatives, or friends, as well as entities like trusts, charities, or your estate. That said, there are rules and best practices to consider when choosing beneficiaries:

Eligible Beneficiaries – Typically, any person or legal entity can be a beneficiary. Common choices are:

• Spouse: As discussed, spouses have a privileged status. If you’re married, your plan expects (and in many cases requires) your spouse to be the primary beneficiary unless they agree otherwise. Spouses also get the most flexibility with an inherited 401(k) (for example, they can roll it into their own IRA or even leave the money in the plan and delay distributions until they’d need to take RMDs).
• Children or Other Family: You can name children (adult or minor), grandchildren, siblings, or other relatives. If minors are named, remember a guardian or custodian will manage the money until the child is of age (or the funds can go into a trust for them). Often, people name adult children as contingent beneficiaries if the spouse is primary.
• Multiple Individuals: You are free to name more than one beneficiary and split the account among them. For example, you could designate 50% to your spouse and 50% to your sibling, or split an account among three children in equal or unequal shares. The only requirement is that the percentages must add up to 100%.
• If you name multiple primary beneficiaries and one of them predeceases you (and you don’t update the form), most plans will redistribute that share according to plan rules—sometimes to the surviving named beneficiaries, or otherwise to your estate if no contingent is in place. To avoid uncertainty, you can specify “per stirpes” (meaning a deceased beneficiary’s share goes to their descendants) or just keep your designations updated.
• Trusts: Naming a trust as the beneficiary can be useful, especially if your intended heir is a minor, has special needs, or if you want control over how the money is used after your death. If a trust is the beneficiary, the 401(k) funds will be paid to the trust, and then the trustee distributes funds to the trust’s beneficiaries per your instructions.
• Make sure the trust is properly structured for retirement assets; a “see-through” trust can preserve the ability for stretched distributions (where allowed by law), whereas a poorly structured trust might force a quick payout.
• Charities: You can leave part or all of your 401(k) to a charitable organization. This can fulfill philanthropic goals. One advantage is that distributions to the charity won’t be taxed (since charities are tax-exempt), which can make a 401(k) an efficient asset to donate compared to leaving it to individuals who would owe tax on withdrawals.
• Your Estate: Technically, you can name your estate as the beneficiary of your 401(k), but this is usually not recommended. If your estate is the beneficiary (or if the account defaults to the estate because no beneficiary is alive or designated), the 401(k) must go through probate and the funds will be distributed according to your will or intestacy. This process is slower and can have tax disadvantages (the 5-year withdrawal rule for estates, as mentioned, which can accelerate taxes). Generally, it’s better to name the specific people or a trust, rather than funneling the 401(k) through the estate.

Restrictions and Considerations – While you can name almost anyone, keep in mind:

• If you’re married and want to name someone other than your spouse as primary beneficiary, you must get your spouse’s written, notarized consent. Without it, your non-spouse designation won’t be valid under the plan’s rules.
• If you name a minor directly, plan ahead for how the money will be managed (consider using a trust or UTMA custodianship). Otherwise, a court will step in to appoint a guardian or custodian.
• If you have a complicated family situation (second marriage, step-children, etc.), be extra clear in your designations. You can even name multiple primary beneficiaries to provide for different family members. Just ensure percentages are clear.
• Regularly update your beneficiaries. The person who was appropriate 10 years ago may not be today. Life events like divorce, remarriage, births, or deaths warrant a review of your 401(k) beneficiary form.
• Remember that naming someone on the form overrides what your will might say about that account. Consistency between your beneficiary forms and will/trust will prevent confusion or unintended outcomes.

In summary, who can inherit your 401(k) comes down to who you name on the beneficiary form (with the caveat that a spouse has veto power unless they waive it). Virtually any person or entity is fair game, so long as you follow the rules for spousal consent when necessary.

Primary vs. Contingent Beneficiaries: Differences & Rights

When you fill out a 401(k) beneficiary form, you’ll typically name both primary and contingent beneficiaries. It’s important to understand how these categories work and the rights attached to each:

Primary Beneficiaries (First in Line): A primary beneficiary is your first-choice heir to your 401(k). If one or more primary beneficiaries are alive at the time of your death, they will inherit the account, splitting it according to the percentages you set. Each primary beneficiary has a claim to the portion you assigned them.

For example, if you name your spouse and your brother each as 50% primary beneficiaries, each will receive half of the account after you die. Primary beneficiaries have the first rights to the money – the 401(k) plan will pay them out directly, and contingent beneficiaries won’t receive anything unless all the primary beneficiaries predecease you (or a primary legally disclaims the inheritance).

Primary beneficiaries also have choices once they inherit (within legal limits). A spouse who is a primary can roll over the account to their own IRA or keep it as an inherited account.

A non-spouse primary beneficiary can decide whether to take distributions throughout the allowed period (up to 10 years now) or even disclaim the asset if they don’t want it (perhaps to let it pass to a contingent). If a primary beneficiary disclaims the 401(k), it’s treated as if they died before the owner, so the next in line (contingent or default) would inherit.

Contingent Beneficiaries (Backup Heirs): A contingent beneficiary inherits the 401(k) only if no primary beneficiary is able to. “Unable” typically means the primary beneficiary died before you (or at the same time as you), or the primary explicitly declines the inheritance. Contingents are basically your Plan B. You can name one or more contingent beneficiaries and decide what share of the account each would get if they step into the primary role.

For instance, you might name your spouse as sole primary beneficiary, and your two children as contingent beneficiaries (each to receive 50% if the contingent layer is triggered). If your spouse is alive and willing to accept the 401(k) at your death, the children get nothing from that account. But if your spouse predeceases you or disclaims the account, then your children would inherit as contingents.

A contingent beneficiary has no rights to the account as long as any primary beneficiary is alive and accepts the asset. They cannot demand any portion if a primary is taking it. Their rights are expectant and only materialize if something happens to all primaries.

Why Having Both Matters: Naming contingent beneficiaries is vital for a complete estate plan. If you only list a primary and that person isn’t around to inherit (and you hadn’t updated your form), the 401(k) might default to your estate or follow the plan’s fallback rules. By naming a contingent, you ensure there’s a backup inheritor already designated, which avoids probate and uncertainty.

For example, a common practice is to name one’s spouse as primary and the children as contingents. That way, if the spouse can’t inherit (due to predeceasing or simultaneous death), the children are already set to receive the account directly. If you have no contingents and your primary is gone, the situation becomes like having no beneficiary at all.

In summary, primary beneficiaries are first in line with full rights to inherit the 401(k) upon your death, and contingent beneficiaries are the backups who step in only if needed. It’s important to keep both levels current—life is unpredictable, and you want to have a safety net so your 401(k) goes exactly where you intend in all scenarios.

What Happens If No Beneficiary Is Designated?

Failing to name a beneficiary (or having only beneficiaries who predecease you with no contingency) is a scenario you want to avoid. But if it happens, here’s what typically occurs:

Default Provisions of the 401(k) Plan: Most 401(k) plans have a default hierarchy written into their rules for when no beneficiary is named or alive. Often, the default will give the money to your surviving spouse first. For example, many plans state that if a participant dies without a valid beneficiary designation, the death benefit automatically goes to the spouse. If you have no spouse, it might then go to your children (split equally among them), and if no children, then perhaps to your estate or next of kin. Each plan can have its own default succession, so the details can vary, but because federal law favors spouses, expect the spouse to be at the top of the list.

Estate and Probate: If no beneficiary is designated (or none survives) and there is no spouse (or sometimes if the plan doesn’t specify further defaults beyond spouse), the 401(k) will be paid into your estate. This means the account’s balance essentially becomes an asset of your estate and will go through probate. The executor of your estate (if you have a will) or an administrator (if no will) will then have to distribute the funds according to your will or state intestacy law.

If you died with a valid will, the will might specify who gets your residuary estate (everything not directly assigned), and that could include the 401(k) money. If you had no will (intestate), the state law will decide — typically spouse and children, or other relatives as a fallback, as noted earlier.

The downside here is multi-fold: going through probate means a delay (months, maybe more than a year in some cases) before the heirs get the money. Also, for tax purposes, an estate is not a “designated beneficiary,” so the entire 401(k) likely must be withdrawn on an accelerated schedule (often within 5 years if the owner died before starting RMDs, or over the owner’s remaining theoretical life expectancy if they died after starting RMDs). This can result in a large tax bill sooner than necessary. Plus, probate proceedings and estate administration might incur legal fees that effectively reduce the value that ends up with your heirs.

Spousal Implications: If you were married and somehow neither you nor the plan named your spouse or anyone else (for example, if you never filled out the form at all), virtually every 401(k) plan will still treat your surviving spouse as the default beneficiary. It would be unusual for a spouse to be skipped over in the default rules. So in practice, your spouse would likely claim the account by providing a death certificate and appropriate paperwork. Only if you have no spouse (or if the spouse also died with you) does the estate route become the main outcome.

Real-World Example: Imagine John has a 401(k) and never submits a beneficiary form. He’s married to Jane. John dies unexpectedly. John’s 401(k) plan says that if no beneficiary is named, the account goes to the surviving spouse.

So, Jane would provide John’s death certificate to the plan, and the 401(k) would be transferred to her. She could then roll it into her own IRA or leave it in the plan as an inherited 401(k) and take distributions on her timeline.

Now, imagine John was single with two kids and never named a beneficiary. He dies, leaving no spouse. John’s plan defaults might say “if no spouse, then to children equally.” In that case, his two children would split the account 50/50, perhaps by establishing inherited IRAs for each of them with half the assets. But if the plan instead said “if no spouse, pay to the estate,” then John’s 401(k) goes into his estate.

If John had a will leaving everything to his kids, the executor would eventually distribute the 401(k) funds to them (after possibly liquidating the account and paying taxes from the estate). If John had no will either, state law would give it to the kids anyway, but the process would be handled by a court-appointed administrator. Either way, not naming the kids directly caused extra steps and potentially a faster taxation.

Avoiding the No-Beneficiary Pitfall: The outcome of not having a beneficiary can range from relatively smooth (if it defaults to a spouse) to messy (if it goes to the estate and through court). Fortunately, it’s easy to avoid this pitfall: always name at least one primary beneficiary, and ideally one or more contingent beneficiaries.

Most 401(k) enrollment forms prompt you to do this, but you’d be surprised how many people leave it blank or forget to update after, say, their listed beneficiary passes away. Take a few minutes to double-check your 401(k) beneficiary designations and update them if needed — it can save your loved ones a lot of trouble later.

Legal Challenges & Disputes: Court Case Insights ⚖️

While 401(k) beneficiary rules are straightforward in theory, real life can produce disputes. Sometimes family members or others might contest who should get the money. Here are some common legal challenges and how courts have handled them:

Contesting a Beneficiary Designation: Challenges to a beneficiary form itself (claiming it’s invalid due to fraud, duress, or lack of capacity) are relatively rare, but they do happen. For instance, siblings might argue that an ailing parent was coerced by one child into changing the 401(k) beneficiary in that child’s favor. Because ERISA plans put heavy weight on the written form, it’s an uphill battle to overturn a beneficiary designation. A court would require strong evidence of forgery, incompetence, or undue influence to invalidate a signed beneficiary form.

Absent that, the plan administrator will pay the named beneficiary. In practice, these cases might be pursued outside the plan — for example, one heir suing the beneficiary for wrongful interference — but such lawsuits are difficult and success is not common.

Ex-Spouse vs. Current Family: One of the most common real-world disputes is when an ex-spouse is still the named beneficiary on a 401(k) because the account owner never updated the form after a divorce. Suppose someone marries a second spouse and has kids, but forgets that their first spouse is still on the beneficiary form from years ago. When they die, the first spouse could receive the 401(k), and the current spouse or children might be shocked and upset. Legally, as we’ve noted, the plan must honor the form on file.

In the Supreme Court case Kennedy v. DuPont, the decedent’s daughter (and estate executor) tried to claim the 401(k) since the ex-wife had waived rights in a divorce, but the Court unanimously held that the plan correctly paid the ex-wife because the form still named her. The lesson: courts will side with the clear plan beneficiary on record, even if the result seems counterintuitive or unfair to others.

An ex-spouse who wasn’t supposed to get the money per a divorce agreement might voluntarily disclaim it or, conceivably, could be sued by the intended heirs based on the divorce contract — but those are separate battles. The 401(k) plan itself won’t mediate that; it will simply pay whoever is named.

Spousal Consent Issues: Consider a case where a married individual names someone other than their spouse as the 401(k) beneficiary without the spouse’s knowledge or consent. If that person dies, the surviving spouse can (and likely will) challenge the payout. Under ERISA, without a signed spousal waiver, the non-spouse beneficiary designation isn’t valid. The plan should in theory ignore that unauthorized designation and pay the spouse. If the plan somehow paid the other person, the spouse could sue to recover the funds.

This is why plans are strict about requiring the spouse’s notarized signature if you try to name a different beneficiary while married. So, if you are a non-spouse listed on a 401(k) and the owner was married but you suspect the spouse didn’t consent, be aware that your claim is on very shaky ground.

Promises and Wills vs. Plan Documents: Another dispute scenario is when someone other than the named beneficiary claims the deceased “really intended” them to have the 401(k). They might point to a will or trust that says so, or verbal promises. For example, say the decedent’s will leaves “all my retirement accounts to my brother,” but the 401(k) beneficiary form on file still names an old friend. The brother might argue that the will proves the friend shouldn’t get it. However, as legal precedent shows, the plan beneficiary form controls, not the will.

Courts have consistently ruled that a beneficiary designation can’t be overridden by will provisions or oral statements. In other words, your secret intent or even written intent in a will won’t matter to the 401(k) plan if it’s inconsistent with the form on file. The friend would inherit in this scenario, and the brother would be out of luck, legally speaking.

Quick Recap of Notable Rulings:

• Egelhoff v. Egelhoff (2001) – Confirmed that ERISA preempts state laws that would automatically remove an ex-spouse as beneficiary. Result: The ex-spouse remained beneficiary since the form wasn’t changed after divorce.
• Kennedy v. Plan Administrator for DuPont (2009) – Emphasized that plan administrators must follow the plan documents (beneficiary form). An ex-wife got the 401(k) because she was still the named beneficiary, even though a divorce decree said she gave up rights.
• Boggs v. Boggs (1997) – Established that a spouse’s ERISA rights to pension/401(k) benefits can’t be undermined by someone else’s will. In that case, a first wife’s attempt to leave her share to her sons was invalidated to protect the surviving second wife’s rights.

The common theme in court decisions is to reinforce that 401(k) plans should pay according to the rules and forms in place, and not try to second-guess the deceased’s possible wishes or state law concepts. It places the burden on individuals to keep their beneficiary designations up to date and in line with their intentions.

Resolution of Disputes: The vast majority of 401(k) inheritance situations do not end up in court. They’re resolved by the plan following the beneficiary form. To avoid any chance of dispute, the best practice is proactive: regularly update your beneficiary form, communicate your intentions to your family, and make sure any divorce or marriage paperwork addresses the 401(k) properly. If a dispute does arise, typically the aggrieved party’s recourse is to sue the beneficiary (not the plan) after the fact, which is expensive and often unsuccessful.

The only time a plan will deviate from the form is if it’s presented with a valid Qualified Domestic Relations Order (QDRO) or similar court order (usually from a divorce or support case) that directs a portion of the account to someone else. QDROs are an exception in ERISA that allow assignment of part of a 401(k) to an ex-spouse or child as ordered by a court.

If a QDRO was in place, the plan will honor that order and pay the designated portion accordingly, even if the beneficiary form says something different for that portion.

In summary, legal challenges around 401(k) inheritance underscore one key point: keep your documents in order. Courts uphold the plan’s beneficiary designation almost without exception. By avoiding ambiguity and adhering to the rules (like spousal consent), you can spare your loved ones any courtroom fights over your 401(k).

Common Mistakes and How to Avoid Them ❗

Even knowledgeable people can make mistakes with their 401(k) beneficiary planning. Here are some frequent errors — and how to avoid them:

• ❌ Not Naming a Beneficiary: If you fail to specify anyone, your 401(k) will default to a beneficiary set by law or plan (often your spouse, or otherwise your estate), leading to potential probate and delays. Fix: Always designate at least one primary beneficiary (and a contingent backup) when you enroll in the plan and review it periodically.

• ❌ Not Updating After Major Life Events: Marriage, divorce, having children, or the death of a previously named beneficiary can all render your old designation outdated. If you don’t update your form, the wrong person (e.g. an ex-spouse) might inherit, or a deceased person could be listed (causing the account to go to your estate). Fix: Review and update your 401(k) beneficiary designations whenever you have a significant life change. It’s wise to check every few years even if nothing major happens, just to be safe.

• ❌ Relying Only on a Will: Some people think they can just state who gets their 401(k) in their will and not bother with the plan’s beneficiary form. This is a mistake because the will does not override the plan’s designation. Fix: Ensure your 401(k) beneficiary form is filled out to reflect your wishes, and make it consistent with your will or trust. Never assume your will can redistribute your 401(k) – the plan will ignore the will if it conflicts with the beneficiary on record.

• ❌ Naming a Minor Child Directly: Listing a young child as your 401(k) beneficiary without any additional planning means a court will likely have to appoint a guardian to manage the money until the child is an adult. Fix: If you want a minor to benefit from your 401(k), consider naming a trust for the child or a custodial arrangement (UTMA account) as the beneficiary. That way an adult (whom you choose) will manage the funds for the child under the terms you set, without court interference.

• ❌ No Contingent Beneficiary: If you name only a primary beneficiary and they die before you (and you don’t update the form), you effectively have no beneficiary at your death. The account may then go to your estate by default. Fix: Always name at least one contingent beneficiary. This ensures there’s a backup if the primary can’t take the account, keeping the inheritance out of probate.

• ❌ Ignoring Spousal Consent Rules: Trying to name someone other than your spouse in secret, without the required waiver, can lead to disaster. If you do this, the designation likely won’t hold up and your spouse could claim the 401(k) anyway, possibly after a legal fight. Fix: If you intend to name a non-spouse beneficiary and you’re married, have an honest conversation with your spouse and follow the proper procedure. Obtain the necessary spousal consent in writing (duly notarized) as required by the plan. It’s better to handle it upfront than leave a mess for later.

• ❌ Using the Wrong Kind of Trust: If you name a trust as your 401(k) beneficiary, it needs to be crafted to handle retirement assets. An improperly designed trust could force an immediate payout of the 401(k), causing a big tax hit, and negate the ability for heirs to spread withdrawals over time. Fix: Work with an estate planning attorney to set up a trust that is suitable for being a retirement account beneficiary (often called a “see-through trust” or similar). Make sure the trust complies with IRS rules so that it doesn’t inadvertently trigger unwanted tax consequences.

Avoiding these mistakes comes down to careful planning and periodic review. A 401(k) beneficiary designation isn’t a “set it and forget it” task — it should evolve with your life circumstances. By staying on top of it, you ensure that the right people inherit your hard-earned retirement savings without unnecessary drama or delay.

Pros & Cons of 401(k) Inheritance

Inheriting a 401(k) has both advantages and disadvantages for the beneficiaries (and considerations for the person planning to leave the 401(k)). Here’s a quick overview:

Every situation is different, and these pros/cons can weigh differently for each individual. For instance, if you’re planning your estate and worried about your heir’s tax burden, you might consider converting some 401(k) money to a Roth (which would then be tax-free to them, addressing the tax con). Or if you’re a beneficiary, you might prioritize strategies to minimize the tax hit while taking advantage of the growth and deferral while you can.

401(k) vs. IRA vs. Other Retirement Plans: Inheritance Differences

Not all retirement accounts follow identical inheritance rules. Here’s how 401(k) inheritance compares with other common retirement plans:

401(k) vs. Traditional IRA: Both allow beneficiary designations, but a key difference lies in spousal rights. A 401(k) by law gives the spouse automatic beneficiary status and requires spousal consent to name anyone else. An IRA, however, is not governed by ERISA, so you can name anyone as beneficiary without needing your spouse’s signature under federal law. That said, in community property states, a spouse might still have a claim on a portion of an IRA (they could challenge an IRA beneficiary after death for their community share). In practice, financial institutions in community property states often require a spouse to sign off for an IRA beneficiary other than the spouse, just to avoid conflicts.

Another difference: a surviving spouse inheriting a 401(k) will often roll it into an IRA. With an IRA, if a spouse inherits, they have the option to treat it as their own IRA directly. Tax rules after the SECURE Act are similar for inherited IRAs and 401(k)s—non-spouse beneficiaries generally have the 10-year rule for both. One nuance: some 401(k) plans might force beneficiaries to take the money out sooner (e.g., within 5 years or a lump sum) if the plan doesn’t allow a long-term stretch, but the beneficiary can often transfer the funds to an inherited IRA to use the full 10-year period. IRAs usually give beneficiaries the full flexibility of that 10-year window.

401(k) vs. Roth IRA (and Roth 401(k)): Roth accounts change the tax picture. Inheritance rules in terms of timeline are similar (non-spouse beneficiaries must take Roth funds out within 10 years as well), but the big advantage is those withdrawals are tax-free for Roth IRAs and Roth 401(k)s (assuming the Roth was held 5+ years). A surviving spouse can roll over a Roth 401(k) into their Roth IRA and then they won’t have to take any distributions in their lifetime (Roth IRAs have no RMDs for the original owner or surviving spouse). In contrast, if the spouse leaves the money in a Roth 401(k) as an inherited account, they would have to take RMDs because Roth 401(k)s still had RMD rules for original owners. So, typically a spouse will roll a Roth 401(k) to a Roth IRA to avoid any distribution requirements.

For non-spouse heirs, inheriting a Roth IRA vs. Roth 401(k) is very similar: 10-year rule, but they can withdraw any time in those 10 years without tax. The lack of tax can make timing simpler (no tax planning needed beyond just leaving it in as long as possible for growth).

401(k) vs. 403(b) and 457 Plans: These workplace plans largely mirror 401(k) rules, though some 403(b) and government 457 plans aren’t subject to ERISA. For example, a governmental 457(b) plan might not require spousal consent to name a non-spouse beneficiary, depending on state law or plan policy. Many 403(b) plans offered by public schools or churches also don’t fall under ERISA. However, practically, many of these plans still default to the spouse as beneficiary. Inheritance distribution rules (the SECURE Act, etc.) apply to 403(b) and 457 accounts just like to 401(k)s and IRAs. So a non-spouse inheriting a 403(b) after 2020 also has the 10-year rule.

401(k) vs. Pension (Defined Benefit Plan): Traditional pensions work differently — they typically don’t have an “account” to leave. Instead, if a pension offers survivor benefits, it usually goes to the spouse as a monthly annuity payment (unless the spouse waived and another beneficiary annuity was chosen). You generally cannot name arbitrary beneficiaries for a pension; it’s predetermined by plan rules (most often spouse, or none if no spouse, or sometimes a refund of contributions if no eligible beneficiary). So, pensions have far less flexibility in estate planning compared to a 401(k). A 401(k) is your property (within plan rules) to assign to a beneficiary of your choice; a pension is more of a guaranteed stream where the default is spouse and there’s little room for anything else.

Inherited Account Management: No matter the plan type, once a beneficiary inherits, they often have the option (or requirement) to move the money to an “inherited IRA” for easier management. For example, if you inherit a 401(k) from a parent, you might transfer it to an inherited IRA in your name. This doesn’t change the distribution timeline but can give you more control over investments and withdrawals. Spouses can roll inherited funds into their own IRA (taking on the normal IRA rules as if the money was always theirs). Non-spouses must title the IRA as inherited (like “John Doe IRA (deceased 2025) f/b/o Jane Doe (beneficiary)”) and take out the money within the allowed timeframe.

In conclusion, 401(k)s, IRAs, and other retirement plans share the common feature of allowing beneficiary designations that bypass probate. The biggest differences lie in spousal rights (401(k) is stricter in favor of spouses), and some administrative rules. If you have multiple types of retirement accounts, it’s wise to coordinate their beneficiary designations and understand the nuances of each so your overall plan works as intended.

Frequently Asked Questions (FAQs)

Q: Does my spouse automatically inherit my 401(k) when I die?
A: Yes, if you’re married, your spouse is usually the automatic primary beneficiary of your 401(k) under federal law—unless you officially named someone else and your spouse signed a written waiver agreeing to that.

Q: Can I leave my 401(k) to my children instead of my spouse?
A: You can, but if you’re married, your spouse must provide notarized consent to waive their right. With that consent, you’re free to designate your children (or anyone else) as the primary beneficiaries in whatever shares you choose.

Q: What happens if I name my estate as the 401(k) beneficiary?
A: The 401(k) will be paid into your estate and go through probate. It will then be distributed according to your will (or state intestacy law if no will). This process can delay the payout, incur probate costs, and may force the account to be liquidated and taxed more quickly than if an individual inherited it.

Q: Does a will override a 401(k) beneficiary designation?
A: No. The beneficiary designation on the 401(k) account will override any instructions in your will. For example, even if your will says “my 401(k) goes to my sister,” if your 401(k) form names your brother as beneficiary, the brother will get it. Always ensure your beneficiary form reflects your true intent.

Q: Can an ex-spouse still get my 401(k) after a divorce?
A: Surprisingly, yes. If you named your now-ex-spouse as beneficiary and never updated it after the divorce, he or she is likely still entitled to inherit the 401(k). ERISA will enforce the designation on file, regardless of divorce, unless a QDRO or explicit waiver addressed it. It’s crucial to update your beneficiary after a divorce.

Q: Can I name multiple beneficiaries for my 401(k)?
A: Absolutely. You can name several people (or entities) as primary beneficiaries and assign each a percentage of the account (totaling 100%). You can also name multiple contingent beneficiaries with percentages. If one beneficiary predeceases you, their portion will be handled per the plan rules—often it goes to your remaining designated beneficiaries or to your contingents if you specified.

Q: What if my primary beneficiary dies before me and I don’t change it?
A: If no other primary beneficiary is alive when you pass (and you have no contingent named), the 401(k) will treat it as having no beneficiary. Typically, it would then go to your default (likely your spouse or estate). That’s why naming a contingent beneficiary is important — to avoid this situation. If a beneficiary dies, update your designations as soon as you can.

Q: Are inherited 401(k) funds taxed for the beneficiary?
A: Generally yes, for traditional 401(k)s. The beneficiary will pay income tax on distributions they take from an inherited 401(k). They can usually spread withdrawals over up to 10 years (taking smaller amounts periodically or wait and take one lump at the end), but any withdrawal in a given year is taxable income to them. If the 401(k) has Roth contributions, those come out tax-free. Also, if the beneficiary is a spouse who rolls it into their own account, they’ll pay taxes only when they eventually withdraw, under their own retirement schedule.

Q: Can a trust be the beneficiary of a 401(k)?
A: Yes, you can name a trust. It’s a common strategy if you have minor children or others who shouldn’t receive a large sum outright. The 401(k) will be paid to the trust at your death, and then the trustee will manage and distribute the money according to the trust instructions. Just make sure the trust is drafted properly to handle retirement assets—some trusts allow the 10-year withdrawal rule to apply, while others might trigger an immediate payout. Consulting an estate attorney is advised when setting this up.

Q: How do I ensure my 401(k) beneficiary designation is up to date and valid?
A: Contact your plan administrator or HR department to get a copy of your current beneficiary designation and see who’s on file. If you need to make changes, fill out a new beneficiary form (many plans let you do this online now). If you’re married and naming someone other than your spouse, be sure to follow the instructions for spousal consent. After submitting, confirm with the plan that the change was received and recorded. It’s wise to keep a personal copy of any beneficiary forms you submit, along with your will or estate documents.