401(k) beneficiary rules: who inherits, spousal consent and payout options

The basic 401(k) beneficiary rules are these: if you are married, federal law generally makes your spouse the automatic beneficiary of your 401(k) unless your spouse consents in writing, with the signature witnessed by a notary or a plan representative, to you naming someone else. If you are unmarried, you can name anyone. The beneficiary form on file with the plan, not your will, decides who is paid, and how quickly a beneficiary must withdraw the money depends on their relationship to you and on the plan's own terms.

Most of the problems that reach an accountant's desk after a death start here: an ex-spouse still named on an old form, children named without the new spouse's consent, or no form at all. This guide explains who can be named, what happens when nobody is, and how the payout and tax rules work for each kind of beneficiary. It is general education, not legal or tax advice.

The beneficiary form controls, not your will

A 401(k) passes by contract. When you die, the plan administrator pays whoever is entitled under the plan document and your beneficiary designation. The account does not pass through your will, and an instruction in a will that conflicts with the form has no effect on the plan.

Two US Supreme Court decisions show how firmly this is applied to employer plans governed by ERISA:

• In Egelhoff v. Egelhoff (2001), the Court held that ERISA overrides a state law that would have automatically revoked a former spouse as beneficiary on divorce. Such state laws generally cannot be relied on for an ERISA plan.
• In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan (2009), a former spouse had given up her interest in the divorce decree, but the participant never changed the plan's beneficiary form. The Court held that the administrator was right to pay the person named in the plan's records.

The practical lesson is short. After a marriage, divorce, birth or death in the family, update the form with the plan itself. A divorce decree, a prenuptial agreement or a will does not do it for you.

The spouse's automatic right and how consent works

The Internal Revenue Code and ERISA give a surviving spouse protected rights in qualified plans. For most 401(k) plans this takes a simple form: the plan provides that on your death the whole vested account goes to your surviving spouse, unless the spouse has consented to a different beneficiary.

For a spouse's consent to be valid it generally must:

• be in writing;
• acknowledge the effect of giving up the benefit;
• name the specific alternative beneficiary, unless the consent expressly permits you to change beneficiaries later without further consent; and
• be witnessed by a notary public or a plan representative.

Several consequences surprise people.

A prenuptial agreement is not a valid consent. The consent must be given by a spouse, and someone signing a prenup is not yet a spouse. A waiver promised in a prenup needs to be followed by the plan's own consent form after the wedding.

Marriage can override an earlier designation. If you named your children while single and later marry, your new spouse generally becomes the beneficiary by operation of the plan, whatever the old form says, unless the spouse signs a consent. Plans are permitted to apply this protection only once you have been married for a year, and some do, so check the plan's wording.

IRAs are different. The federal spousal consent rules apply to employer plans, not to IRAs. Once 401(k) money is rolled into an IRA, the owner can generally name any beneficiary without consent, subject to state community property law.

Primary and contingent beneficiaries

A beneficiary form normally asks for two tiers.

• Primary beneficiaries are first in line. You can name one or several and set a percentage for each.
• Contingent (secondary) beneficiaries are paid only if no primary beneficiary survives you.

You can usually name individuals, a trust, a charity or your estate. Three points are worth care:

1. Percentages must add up to 100% in each tier. Check what the plan does with a share if one of several primary beneficiaries dies before you.
2. Minor children cannot usually receive plan money directly. Without a trust or a custodian arrangement recognized under state law, a court may need to appoint a guardian for the funds.
3. Naming a trust can give control over timing and protect a vulnerable beneficiary, but the trust has to be drafted with the distribution rules in mind. The considerations are similar to those in our guide to a trust as IRA beneficiary.

What happens if there is no valid beneficiary

If you never completed a form, or everyone named has died before you, the plan document supplies the answer. A typical order of default is surviving spouse first, then children, then other relatives or the estate, but the sequence differs between plans, and some go straight from spouse to estate.

Payment to an estate is usually the least favorable outcome. The money becomes subject to probate and to the estate's creditors, and an estate is not a "designated beneficiary" for distribution purposes, which generally means a shorter payout period and faster taxation than an individual beneficiary would have had.

Payout rules by type of beneficiary

The SECURE Act changed the rules for deaths after 2019, and IRS final regulations issued in 2024 filled in the detail. The framework sorts beneficiaries into three groups. The same framework applies to IRAs, and our inherited IRA guide covers it in more depth.

Beneficiary	General payout rule
Surviving spouse	Widest choice: roll over to their own IRA or plan, move to an inherited IRA, or remain in the plan as beneficiary if the plan allows
Other eligible designated beneficiaries: the participant's minor child, a disabled or chronically ill individual, or someone not more than 10 years younger than the participant	May generally take distributions over their own life expectancy; a minor child switches to the 10-year rule on reaching the age of majority as defined in the regulations
Other designated beneficiaries, such as adult children, siblings more than 10 years younger, friends	The account must be emptied by the end of the tenth year after the year of death
No designated beneficiary, such as an estate or a charity	Generally a five-year rule if the participant died before their required beginning date, or distributions over the participant's remaining life expectancy if after

Three refinements matter in practice.

Annual distributions may be required during the 10 years. Under the final regulations, if the participant died on or after their required beginning date for RMDs, a beneficiary subject to the 10-year rule generally must also take annual distributions in years one to nine, with the balance out by the end of year ten. If the participant died before that date, there is no annual requirement, only the 10-year deadline.

The year-of-death RMD still has to be taken. If the participant had reached RMD age and had not taken the full required distribution for the year of death, the beneficiary must take the remainder, or an excise tax can apply.

The plan can be stricter than the law. The tax rules set the longest period allowed. A plan is free to offer less, and some pay non-spouse beneficiaries only as a lump sum or within a few years. This is where a direct rollover becomes important.

Rollovers: the choice that preserves the most flexibility

A surviving spouse can roll the inherited 401(k) into their own IRA and treat it as their own. From then on the spouse's own age governs RMDs and the spouse names new beneficiaries. The trade-off is that withdrawals before age 59½ from the spouse's own IRA can attract the 10% additional tax, whereas distributions taken as a beneficiary are exempt from it. A younger surviving spouse who needs income may therefore prefer to keep some or all of the money in beneficiary form for a time. See our guide to the spousal rollover IRA.

A non-spouse beneficiary cannot treat the money as their own, and cannot do a 60-day rollover. What they can do is ask the plan to make a direct rollover to an inherited IRA set up in the deceased participant's name for their benefit. Plans are required to offer this to designated beneficiaries. It does not extend the legal payout period, but it removes the plan's stricter timetable and lets the beneficiary choose when within the permitted period to take the income.

The order of events is critical. If a non-spouse beneficiary receives a check payable to themselves, the distribution is taxable and cannot be put back. The transfer must go from the plan directly to the inherited IRA custodian.

How inherited 401(k) money is taxed

• Traditional (pre-tax) balances are taxed as ordinary income to the beneficiary in the year they are distributed. There is no step-up in basis at death for retirement accounts.
• Designated Roth balances come out tax-free if the distribution is qualified, which broadly requires that the participant's Roth account in the plan had met its five-year holding period. Beneficiaries are still subject to the payout deadlines above.
• The 10% additional tax on early distributions does not apply to distributions made to a beneficiary after the participant's death, whatever the beneficiary's age.
• Withholding. An eligible rollover distribution paid to a beneficiary instead of directly rolled over is generally subject to mandatory 20% federal withholding. A direct rollover avoids it.

An illustrative timing example

Illustrative example only, based on assumed figures. An adult daughter is the sole beneficiary of her father's traditional 401(k) worth $300,000. He died before his required beginning date. The plan's own rules would pay her a lump sum.

• Lump sum: the whole $300,000 is added to her income in one year, likely pushing much of it into higher tax brackets than her salary alone would reach.
• Direct rollover to an inherited IRA: nothing is taxed on the transfer. She must empty the account by the end of the tenth year after his death, and because he died before his required beginning date, she can choose the pattern. Withdrawing roughly $30,000 a year, ignoring growth, spreads the income evenly; she could also take more in years when her other income is low.

The total income recognized is the same before growth. What changes is the rate at which it is taxed. Tax brackets and thresholds change each year, so run the figures with current numbers before deciding.

Frequently asked questions

Does my spouse automatically get my 401(k) when I die?

In most cases, yes. Federal law generally requires a 401(k) plan to pay the vested balance to your surviving spouse unless your spouse gave written consent, witnessed by a notary or plan representative, to a different beneficiary. Some plans apply this only after one year of marriage.

Can I name my children as 401(k) beneficiaries instead of my spouse?

Only with your spouse's valid written consent on the plan's form. Without it, a designation naming your children is generally ineffective to the extent of the spouse's entitlement, and the plan will pay the spouse. If you are unmarried, you can name your children freely, though minors need a custodian, guardian or trust to receive the money.

Does a will override a 401(k) beneficiary designation?

No. A 401(k) is paid according to the plan document and the beneficiary form on file. A will governs only assets that pass through your estate, which includes the 401(k) only if the estate ends up as the beneficiary.

How long does a beneficiary have to withdraw an inherited 401(k)?

It depends on who they are. A surviving spouse can roll it into their own IRA and follow their own RMD schedule. Most other individuals must empty the account by the end of the tenth year after the year of death, sometimes with annual distributions along the way. Certain eligible beneficiaries can use their life expectancy, and the plan itself may require faster payment unless the money is moved by direct rollover to an inherited IRA.

This article is general education, not legal, tax or financial advice. Plan terms differ and the rules for inherited accounts are detailed and subject to change. Check the plan documents and speak to a qualified professional before acting.