What Happens to My 401K When I Die?

Q: What Happens to My 401K When I Die?

--Concerned Employee

A: Dear Concerned:

For many working-age adults, the 401K is their most significant asset. Despite it being such an important asset, many people don’t know what will happen to their 401K if the plan holder dies. Being aware of who the rightful beneficiary of your 401k is when you die  can forestall any future courtroom battles and help you ensure your family is taken care of the way you want.

Employee-based retirement accounts like 401Ks are subject to federal regulations that protect the rights of surviving spouses. Under the Employee Retirement Income Security Act (ERISA), your surviving spouse, if you have one, will be the presumed beneficiary of your 401K.

A spouse can waive this death benefit right in writing, in which case you could name another beneficiary, such as a child. Unless the account holder’s spouse waives the right, however, his or her right to the account takes precedence over that of any surviving child or dependent. This is true even if an alternative beneficiary is named in the account holder’s will.

If you will not have a surviving spouse, whoever you name as beneficiary is entitled to the asset, regardless of any former agreements. Because of this, it is very important to update your beneficiary forms after major life events such as divorce, remarriage, or the death of a spouse.

Understanding the rules that govern 401Ks can help you avoid you and your loved ones costly mistakes. If you are married, divorcing, divorced, or want to name a beneficiary other than your spouse, you should consult a Personal Family Lawyer®.

Also, ensure you consult with a Personal Family Lawyer® before you name alternative beneficiaries on your plan or include your 401K in your estate plan. Understanding the terms and conditions of your specific plan is important. With some plans, the spouse won’t be entitled to the death benefit until one year after the marriage. Who you can name as a beneficiary and how your plan will pay out will depend on the specifics of your plan. A Personal Family Lawyer®can review your plan and help ensure your 401K ends up in the right hands when you die.