What Happens to My 401(k) If I Die Before Retirement?

If you're planning to rely on your 401(k) savings as a source of income when you retire, the chances are your family will also. If you die before you reach retirement age, this doesn't mean your survivors can't benefit from your 401(k) plan. However, you can take steps to ensure your retirement account is dealt with so that your loved ones gain access to your savings as efficiently and painlessly as possible.

Assigning 401(k) Beneficiaries

When you first opened your 401(k) account, you assigned primary and alternative beneficiaries for your 401(k). Whoever you chose as your primary beneficiary will receive the money in your 401(k) account if you die before reaching retirement age.

If your primary beneficiary has already died, your 401(k) will be distributed to your alternative beneficiaries in the order and manner described in your account. If you don't have any surviving beneficiaries, your 401(k) will become part of your estate and will be distributed according to the instructions you left in your will.

Spouses as Beneficiaries

The law protects the interests of surviving spouses, particularly when it comes to 401(k) accounts. If you assign someone other than your spouse as your primary beneficiary, federal law requires you get your spouse's consent in writing and file the consent with your 401(k) provider. If in the future you wish to assign a different primary beneficiary, you will again need the consent of your spouse, unless the previous consent specifically granted you the right to do so.

Divorced Beneficiaries

If you assigned your spouse as your beneficiary and you subsequently get a divorce, your spouse will still inherit your 401(k) unless you assign a different beneficiary. This may happen even if you think your divorce settlement specifically prevents your ex-spouse from access to your 401(k). In states that require a spouse's consent even after a divorce, such as Texas, you may have to apply for a court order to get a 401(k) beneficiary changed.

Understanding 401(k) Roll Overs

When spouses are the beneficiaries of a 401(k), they have the option of rolling over the 401(k) to a new or existing inheritance account in their name or leaving the account in deceased's name. If the account is rolled over, the account will continue as if it had always been the surviving spouse's retirement account. If the 401(k) stays in the name of the deceased, the surviving spouse will have to start withdrawing the minimum distributions required by the plan the year the deceased would have reached 70 1/2.