Retirement Retirement Planning

What Happens to Your 401(k) When You Die (Most Families Get This Wrong)

One overlooked form can send your 401(k) to the wrong person entirely

By Chris Lewis, CEPF , Edited by Laura Hohenstein

Updated Nov. 15, 2026

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A divorce decree from decades ago can still decide who inherits a 401(k) today. That's because the beneficiary form on file with the plan controls the money, not your will and not a later marriage.

This one fact trips up more families than almost anything else in retirement planning. An ex-spouse named on a form in the 1990s can end up inheriting a 401(k) instead of a current spouse of 20 years, even if the will says something different. To help you avoid money mistakes, here's how the rules actually work, and what to check before it's too late to fix.

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The beneficiary form usually beats the will

If you remember one thing, make it this: the plan pays whoever is named on the beneficiary form, not whoever is named in your will. This isn't a loophole. It's how federal law treats workplace retirement plans like 401(k)s.

The U.S. Supreme Court settled the question in 2009 in a case known as Kennedy v. Plan Administrator for DuPont. A man divorced, and his ex-wife gave up her rights to his 401(k) in the divorce agreement. He never updated his beneficiary form. When he died, the plan paid his ex-wife anyway, because her name was still on file. The court said the plan was right to follow its own paperwork.

The practical lesson is simple. The people who run your plan have to pay benefits based on the documents the plan keeps on file. They generally won't dig into your marital history, read your will, or guess what you meant. They pay the name on the form.

There is one big exception. A court can send retirement money to a spouse, former spouse, or child through a special court order known as a QDRO, short for qualified domestic relations order. If that order meets the plan's requirements, the plan has to follow it no matter who is named on the beneficiary form.

Outside of that, a will or a divorce settlement generally can't force the plan to pay someone else. Any fight over who was supposed to get the money usually has to be worked out among family members after the plan has already paid, not with the plan itself.

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Your spouse is the default, unless they signed it away

If you're married and have a 401(k), your spouse is generally entitled to the account when you die, even if you never filled out a beneficiary form at all.

That protection comes from a 1984 federal law that built spousal rights into most workplace retirement plans. In most 401(k)s and similar plans, your spouse is automatically your beneficiary unless they agree in writing to give up that right. That written agreement, often called a waiver, has to name the specific person who gets the money instead. It also has to be signed in front of a notary or a plan representative.

This matters a lot for blended families. Say you want to leave your 401(k) to a child from a first marriage, a sibling, or anyone other than your current spouse. Your spouse generally has to sign off on that choice. A verbal agreement, a side letter, or a line in your will doesn't count. Without a valid signed waiver, the plan may have to pay your spouse no matter what you intended.

A surviving spouse gets options no one else gets

If you inherit a 401(k) from your husband or wife, you have a choice that other heirs don't have. You can move the money into your own IRA.

That's a real advantage. Rolling an inherited 401(k) into your own IRA lets you treat the account as if it had always been yours. You can leave the money alone until the IRS makes you take it out, which is generally by April 1 of the year after you turn 73. You also avoid the faster payout schedule that most other heirs face.

And you can keep adding money to the IRA if you're still working and eligible. The base IRA contribution limit is $7,500 for 2026, rising to $8,600 for those 50 and older.

Other heirs, including children, grandchildren, and most other non-spouse beneficiaries, don't get that choice. They inherit the money as a separate "inherited" retirement account with its own, stricter rules.

A surviving spouse can also leave the money in an inherited account instead of rolling it over. That can make sense in some cases, such as needing to tap the money before age 59 1/2 without an early withdrawal penalty. A tax professional or financial advisor can help compare the two paths.

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The 10-year rule creates a tax trap for adult children

If an adult child inherits a parent's 401(k) or IRA, the IRS generally gives them 10 years to empty the account, not a lifetime.

That's a big change from the old rules, which let many heirs stretch withdrawals across their own life expectancy. Under current law, most non-spouse heirs, including adult children, have to take out the entire balance by Dec. 31 of the 10th year after the owner's death.

There's a wrinkle that catches people off guard. If the original owner had already started taking required minimum distributions, or RMDs, the heir usually has to take a withdrawal every year during that 10-year window, too. RMDs are the yearly withdrawals the government requires once you reach the trigger age, which is now 73.

The penalty for skipping one of those yearly withdrawals can reach 25% of the amount you should have taken out. It drops to 10% if you fix the mistake within two years. The IRS waived that penalty for missed yearly withdrawals through 2024 while it finished writing the rules, and no new waiver has been announced since.

Every dollar pulled from a traditional 401(k) or IRA counts as taxable income to the heir in the year it comes out. For an adult child in their top-earning years, a big withdrawal can push them into a higher tax bracket. That's especially true if they wait and take it all in year 10.

Vanguard's analysis of inherited IRA withdrawals found that for most people, taking roughly equal amounts each year leads to the lowest total tax bill, because it keeps income from spiking. The right move still depends on your own income, so it's worth mapping out a plan with a tax professional early in the 10 years.

The review worth doing this month

The fix here is simple, but it only works if you actually do it. Pull up the real beneficiary form for every retirement account you own, not just the ones you think about.

That means your current 401(k), any old 401(k)s left behind at former employers, traditional and Roth IRAs, and any other account with a beneficiary line. Don't go by memory, and don't assume updating your will covers it. Log in or call the plan and confirm in writing who is actually listed.

Pay extra attention if you've divorced, remarried, had a child, or lost a spouse since you opened any of these accounts. Name a backup, too. A contingent beneficiary is the person who inherits if your first choice has already died. Without one, the money may go to your estate instead. That can mean a longer, more expensive probate process and a faster forced payout for whoever ends up with it.

Bottom line

The paperwork decides the outcome, not your intentions. A form you filled out years or decades ago can override a will, a remarriage, or a promise you made out loud.

Take an afternoon to check the forms on file for every retirement account you've ever opened, including old employer plans you may have forgotten. It costs nothing, takes less time than most people expect, and may be the single best step toward making sure your savings go where you want them to. It's also a good time to revisit your overall retirement plan.

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