Your 401(k) goes to your named beneficiary — not through your will or probate. Spouses get the most flexibility (they can roll it into their own IRA). Non-spouse beneficiaries must empty the account within 10 years under the SECURE Act.
Who Inherits Your 401(k)
| Beneficiary Status | What Happens |
|---|---|
| Named beneficiary (spouse) | Spouse inherits; can roll to own IRA |
| Named beneficiary (non-spouse) | Inherits; must follow 10-year rule |
| No beneficiary named (married) | Spouse inherits by default (ERISA) |
| No beneficiary named (single) | Goes to estate — subject to probate |
| Ex-spouse still listed | Ex-spouse inherits (update your beneficiary!) |
Spousal vs. Non-Spouse Beneficiary Options
| Option | Spouse | Non-Spouse |
|---|---|---|
| Roll into own IRA | ✅ Yes | ❌ No |
| Stretch over life expectancy | ✅ Yes | ❌ No (10-year rule) |
| Delay withdrawals until own RMD age | ✅ Yes | ❌ No |
| Take lump sum | ✅ Yes | ✅ Yes |
| 10-year distribution | ✅ Optional | ✅ Required |
| Remain as beneficiary of the plan | ✅ Yes | ✅ Yes (some plans) |
The 10-Year Rule (SECURE Act)
| Category | 10-Year Rule Applies? | Alternative |
|---|---|---|
| Spouse | ❌ No (can use own life expectancy) | Roll to own IRA |
| Minor child | ❌ No (until age of majority, then 10-year clock starts) | Life expectancy until 21 |
| Disabled beneficiary | ❌ No | Life expectancy |
| Chronically ill beneficiary | ❌ No | Life expectancy |
| Beneficiary < 10 years younger than deceased | ❌ No | Life expectancy |
| All other non-spouse beneficiaries | ✅ Yes | Must empty within 10 years |
Tax Impact for Beneficiaries
$500,000 traditional 401(k) inherited by non-spouse beneficiary (22% bracket):
| Strategy | Annual Withdrawal | Tax per Year | Total Taxes |
|---|---|---|---|
| Withdraw evenly over 10 years | $50,000/year | $11,000 | $110,000 |
| Wait and withdraw in year 10 | $500,000 in year 10 | $150,000+ | $150,000+ |
| Strategic withdrawals in low-income years | Varies | Varies | Can minimize significantly |
Spreading withdrawals over 10 years keeps you in a lower tax bracket. Waiting until year 10 creates a massive tax bill.
Roth 401(k) Inheritance
| Detail | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Beneficiary pays income tax | ✅ Yes | ❌ No (tax-free) |
| 10-year rule applies (non-spouse) | ✅ Yes | ✅ Yes |
| Spouse can roll to own Roth IRA | ✅ Yes (to traditional IRA) | ✅ Yes |
| RMDs for beneficiary | ✅ Yes | ✅ Yes (but tax-free) |
What You Need to Do Now
| Action | Why |
|---|---|
| Name a beneficiary | Without one, funds go to estate (probate, delays, possible wrong recipient) |
| Name contingent beneficiaries | Backup if primary beneficiary dies first |
| Update after life events | Marriage, divorce, birth, death |
| Review every 1-2 years | Beneficiary forms override your will |
| Inform beneficiaries | They need to know the account exists and where it’s held |
The Bottom Line
Your 401(k) beneficiary designation is the most important estate planning document most people overlook. It overrides your will. Name a beneficiary, name a contingent, and update after every major life event. For beneficiaries: spouses should roll to their own IRA, and non-spouse beneficiaries should spread withdrawals over 10 years to minimize the tax hit.
Also see what happens to your 401(k) when you quit and what happens if your company goes bankrupt. Return to the 401(k) Withdrawal Rules hub.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy