What Happens to Your 401(k) When You Die? Inherited 401(k) Rules

When you die, your 401(k) passes directly to the beneficiary named on your plan’s beneficiary form, not to whoever your will names. A surviving spouse can roll the money into their own IRA or plan. Most other beneficiaries must empty the account within 10 years. Beneficiaries never owe the 10% early-withdrawal penalty, at any age.

By the About401K editorial team · Facts verified against IRC §401(a)(9), IRC §72(t), and IRS post-SECURE Act guidance · Updated September 25, 2026

If you are reading this because someone close to you died, the short version is that you almost certainly do not have to do anything today. The money is safe where it is, the plan will not disappear it, and most of the deadlines that matter are measured in years, not days. This page walks through who inherits, what the tax rules are, and what to do first, in the order those questions usually come up.

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

No. The beneficiary form on file with the 401(k) plan decides who inherits the account, and a will cannot change that. A 401(k) is what lawyers call a non-probate asset. At death it passes by contract straight to the named beneficiary, and the plan administrator is legally required to pay that person even if a will written years later says something else.

Federal courts have enforced this strictly. In Kennedy v. Plan Administrator for DuPont (U.S. Supreme Court, 2009), a 401(k) went to an ex-spouse who was still listed on a decades-old beneficiary form, because that is what the plan document required.

So here is the practical takeaway for your own account. Review your beneficiary form after every marriage, divorce, birth, or death in the family. It takes about five minutes on your recordkeeper’s website (the recordkeeper is the company that administers the plan’s accounts day to day, such as Fidelity, Empower, or Vanguard), and it is the only document that matters for this money.

Automatic spousal inheritance under ERISA

If the account owner was married, the spouse inherits automatically. ERISA, the federal law that governs employer-sponsored retirement plans, gives a participant’s spouse the right to the account at death unless that spouse signed a written waiver agreeing to a different beneficiary (ERISA §205; IRC §401(a)(11)). The waiver is normally witnessed by a notary or a plan representative, and the plan keeps it on file.

This part surprises a lot of families. Naming your children or a trust on the beneficiary form is not enough on its own. Without the signed spousal consent, the designation is invalid and the spouse inherits anyway.

Because this is federal law, it applies regardless of state law and regardless of what a will or a prenuptial agreement says. A prenup signed before the wedding generally cannot substitute for the plan’s own spousal waiver, since at the moment of signing there was no spouse yet to give up the right.

Options for a surviving spouse

A spouse has more flexibility than any other beneficiary, and the choice you make is largely permanent, so it is worth a few days of thought.

• Roll it into your own IRA or your own employer plan. The money becomes your retirement account, with RMDs based on your age rather than your late spouse’s. This is the most common choice. Be aware of the trade-off, though. Once it is your own IRA, a withdrawal before 59½ faces the 10% penalty like any other IRA money.
• Move it to an inherited IRA (or simply leave it in the plan) as a beneficiary. Withdrawals are penalty-free at any age, which makes this the better choice for a younger spouse who may need the money before 59½.
• Take distributions over your own life expectancy as an eligible designated beneficiary, or follow the 10-year rule instead.
• Cash out. A lump sum is always available. It is also taxable as ordinary income all in one year, which is often a large and avoidable tax bill.

The decision that trips people up most often is the first one. Rolling the money into your own IRA feels tidy, and for a spouse over 59½ it usually is. For a spouse under 59½ who may need to draw on the money, it quietly gives up penalty-free access.

The 10-year rule for non-spouse beneficiaries

For deaths in 2020 or later, most non-spouse beneficiaries fall under the SECURE Act’s 10-year rule. The entire inherited account has to be distributed by December 31 of the tenth year after the year of death. The old “stretch,” which let a beneficiary spread withdrawals across their own lifetime, is gone for this group.

You do have a way to keep the money invested and tax-deferred during that decade. A non-spouse beneficiary can move the balance by direct trustee-to-trustee transfer into an inherited IRA, which is titled in the deceased’s name for your benefit, and take distributions from there on the same 10-year clock. What you can never do is roll inherited money into your own IRA or mix it with your own retirement savings.

Five categories of beneficiary, known as eligible designated beneficiaries, escape the 10-year rule and may still stretch distributions over life expectancy.

• The surviving spouse.
• The deceased’s minor child, until reaching age 21. At that point the 10-year clock starts, so the account must be emptied by age 31.
• A disabled individual, as defined in IRC §72(m)(7).
• A chronically ill individual.
• Any beneficiary not more than 10 years younger than the deceased, such as a sibling or a partner close in age.

If no individual is designated at all, because the estate inherits or a trust that does not qualify as a see-through trust inherits, the deadlines get tighter. Generally a 5-year rule applies if the owner died before RMDs began, or distributions are spread over the deceased’s remaining life expectancy if RMDs had already started.

Annual RMDs during the 10-year window

Whether you owe a withdrawal every year depends on one fact about the person you inherited from. Under the IRS RMD regulations finalized in 2024, a beneficiary subject to the 10-year rule must also take annual RMDs in years 1 through 9 if the owner died on or after their required beginning date, based on the beneficiary’s life expectancy, and then empty the rest by the year-10 deadline.

If the owner died before RMDs began, no annual distribution is required at all. The only deadline you have to meet is the end of year 10.

Either way, there is a planning point worth acting on. Waiting until year 10 and taking everything at once concentrates a decade of income into a single tax year, which can push you into much higher brackets. Spreading withdrawals across the window usually produces a smaller total tax bill, and it is the easiest money you will ever save on this account.

Taxes and penalties on inherited 401(k) money

Start with the good news. There is never a 10% early-withdrawal penalty on money you inherit as a beneficiary. Death is a statutory exception to that penalty, no matter how old you are and no matter how old the deceased was (IRC §72(t)(2)(A)(ii)).

Ordinary income tax is a different story, and it depends on what kind of money is in the account.

• Pre-tax 401(k) money is taxed as ordinary income to you in the year you withdraw it. It stacks on top of your wages and can push you into higher brackets. Unlike a house or a brokerage account, a retirement account gets no step-up in basis at death.
• Roth 401(k) money comes out tax-free, as long as the deceased first funded a Roth account at least five years before the distribution. That is the five-year rule. You still have to meet the post-death distribution deadlines, but the withdrawals themselves are not taxed once the five-year test is satisfied.

One mechanical point protects you from an expensive accident. Money headed for an inherited IRA has to move by direct transfer between institutions. A check made out to a non-spouse beneficiary personally is a taxable distribution, and it cannot be put back.

Can a minor be a beneficiary of a 401(k)?

Yes. Any person can be named, including a minor child or grandchild. The complication is not legal ownership, it is payment, because a plan cannot hand a six-year-old a check. An adult has to manage the money until the child reaches majority, and there are three common ways to arrange that.

• A custodian under your state’s UTMA or UGMA law, named directly on the beneficiary form, in the form of “[custodian’s name], as custodian for [child] under the [state] UTMA.”
• A trust for the child, which lets you control the age and the terms of access instead of handing everything over at 18–21.
• A court-appointed guardian of the child’s property, which is the default if you name a minor with no custodian or trust in place. It is also the slowest and most expensive path, which is why it is worth avoiding in advance.

There is one tax nuance that catches grandparents in particular. Only the deceased’s own minor child counts as an eligible designated beneficiary who can delay the 10-year clock until age 21. A minor grandchild, niece, or nephew is on the ordinary 10-year rule from the start.

Payout timelines for a 401(k) inheritance

Most claims pay out in a few weeks to a few months once the paperwork is complete. There is no fixed legal deadline for the payout itself, which is frustrating but also means there is no clock running against you.

The realistic sequence looks like this. You notify the plan’s recordkeeper, submit a certified death certificate along with the plan’s beneficiary claim form, and wait while the plan verifies the designation and, for married participants, the spousal-consent history. Then you either receive payment or have the money transferred to an inherited IRA.

Simple spouse claims at large recordkeepers often pay within 2–4 weeks once the forms are in. Claims involving trusts, estates, minors, missing paperwork, or a disputed designation can take several months. The account stays invested the entire time, so the money is not sitting idle. If you are facing funeral costs before the claim pays out, a hardship withdrawal from your own 401(k) is one bridge option worth knowing about.

First steps for a beneficiary

A few careful moves in the first weeks protect your options and prevent tax mistakes that cannot be undone later. Nothing here is urgent in the sense of days, so take these in order rather than all at once.

1. Order several certified death certificates. The plan will want one, and so will banks, insurers, and any other account. Ordering five or six at the start saves weeks of back-and-forth later.
2. Call the plan’s recordkeeper and open a claim. Give them the participant’s name and Social Security number and ask for the beneficiary claim packet. Ask them to confirm, in writing, who is listed as beneficiary and in what percentages.
3. Ask the plan for your options in writing, along with the deadline that applies to you. The four possibilities are a spousal rollover, an inherited IRA transfer, installment payments, or a lump sum. Ask specifically whether the participant had reached their required beginning date for RMDs, because that determines whether you owe annual withdrawals.
4. Do not cash the first check reflexively. A lump sum is irreversible and fully taxable in a single year. If a check arrives before you have decided, do not deposit it until you understand what it is.
5. Move non-spouse money by direct transfer only. A payout made to a non-spouse beneficiary personally cannot be undone or rolled over, so the transfer has to go institution to institution.
6. Plan the taxes across the whole window. Ten years of flexibility is a real tax-planning asset. Taking a little each year, especially in years when your own income is low, almost always beats a year-10 lump sum.
7. Update your own beneficiary forms while you are at it. If you just inherited from a spouse or parent, your own designations are probably out of date too.

Related reading

• Required minimum distributions: the rules your own account follows at 73
• 401(k) rollovers: how direct transfers work
• 401(k) withdrawal rules: the full guide

Sources: IRS: Retirement topics, beneficiary · IRS: RMD FAQs (inherited accounts) · IRC §401(a)(9), (a)(11) · ERISA §205 (29 U.S.C. §1055) · IRC §72(t)