Inheriting a 401(k) comes with a range of beneficiary rules that vary depending on the beneficiary’s relationship to the account owner. Spouses generally have more options for how to receive the funds, including rolling the 401(k) into their own retirement account or taking distributions over time. Non-spouse beneficiaries, on the other hand, are typically required to withdraw the full amount within 10 years and potentially take requirement minimum distributions (RMDs) during that time.
A financial advisor can help you name beneficiaries on your accounts and create a comprehensive estate plan.
What Is a 401(k) Beneficiary?
A 401(k) beneficiary is the individual or entity designated to receive the funds from a 401(k) account when the account holder passes away.
When opening a 401(k), the account holder typically has the option to name one or more beneficiaries. The primary beneficiary is the person who will receive the 401(k) assets first, often a spouse or child. Then, if the primary beneficiary passes away or cannot inherit the assets, any contingent beneficiaries become next in line.
- You are legally required to name your spouse as a beneficiary, and you’ll need their explicit permission to name someone else. Spouses often have more flexible options for managing the funds as a 401(k) beneficiary. While it is possible to name children or other family members, non-spouse beneficiaries may be subject to different withdrawal rules. It is also possible for an account holder to name a trust or charitable organization as their beneficiary.
Account holders can change their 401(k) beneficiaries at any time. It’s wise to update these designations after life events, such as marriage, divorce or the birth of a child.
Options for Surviving Spouses Who Are 401(k) Beneficiaries
If you’re a surviving spouse inheriting a 401(k), you generally have more flexibility compared to non-spouse beneficiaries. Spouses have several options for the funds, each with its own rules and tax implications.
1. Roll the 401(k) into Your Own Retirement Account
A common option for surviving spouses is to roll the inherited 401(k) into their own IRA or 401(k). By doing so, the surviving spouse treats the assets as their own, meaning they’re not required to take distributions until they reach the required minimum distribution (RMD) age. While the original SECURE Act moved the RMD age from 70 ½ to 72, the SECURE 2.0 Act raised the RMD age to 73 for people born between 1951 and 1959, and 75 for people born in 1960 or later.
Any distributions taken from the rolled-over account will be taxed as ordinary income, and early withdrawals taken before age 59 ½ may incur a 10% penalty.
2. Roll the Funds into an Inherited IRA
Surviving spouses also can choose to roll the funds into an inherited IRA. This allows the spouse to be treated as the original owner of the account and take RMDs based upon their own age or spouse’s age. If the spouse is younger than the deceased, this option allows for more control over the timing of distributions, potentially minimizing taxes. You should also note that withdrawals from an inherited IRA are not subject to early withdrawal penalties.
3. Leave the 401(k) in the Deceased’s Name
Another option is to leave the 401(k) in the deceased’s name and take distributions as a beneficiary. This option works similarly to treating the account as an inherited IRA, but the 401(k) rules remain in place. Distributions are taxed as ordinary income (unless the account is a Roth 401(k)), with no penalty for early withdrawals.
4. Withdraw the Entire Balance
A surviving spouse can also opt to withdraw the entire 401(k) balance in a lump sum. While this offers immediate access to the funds, it comes with significant tax consequences (unless it’s a Roth 401(k)). The entire amount will be taxed as ordinary income in the year it is withdrawn, which could push the spouse into a higher tax bracket. There is no early withdrawal penalty for spouses, but the tax burden can be substantial, especially for larger accounts.
401(k) Beneficiary Rules for Non-Spouses

Non-spouse beneficiaries of a 401(k) face different rules compared to spouses, particularly after the passage of the SECURE Act of 2019 and the SECURE 2.0 Act.
Most non-spouse beneficiaries have fewer options than spouses for what they can do with the inherited funds: they can either take a lump sum withdrawal or roll the money over into an inherited IRA and withdraw all of it within 10 years.
10-Year Withdrawal Rule
Under the SECURE Act, non-eligible non-spouse beneficiaries must withdraw the entire balance of the inherited 401(k) within 10 years of the account holder’s death. As a result, the stretch IRA was eliminated for most non-spouse beneficiaries, who are no longer able to spread their withdrawals out based on their life expectancy. Instead, they must empty the inherited account by the end of the 10th year after the death of the original account owner (assuming the inherited IRA was opened after Jan. 1, 2020).
The IRS in July 2024 clarified that if the original account holder had already begun taking RMDs before passing away, the beneficiary must continue to take these RMDs “at least as rapidly” during the 10-year period, and they must withdraw the full balance required by the end of the 10th year. If the original account holder hadn’t begun taking RMDs, the beneficiary must still empty the account by the end of the 10th year following the person’s death.
There are, however, certain eligible designated beneficiaries (EDBs) who may be exempt from the 10-year rule and can take distributions based on their life expectancy. These include:
- Minor children of the account holder (until they reach the age of majority, at which point the 10-year rule begins to apply)
- Disabled or chronically ill individuals
- Beneficiaries who are not more than 10 years younger than the deceased
10-Year Rule Penalty
If a non-spouse beneficiary fails to withdraw all funds from an inherited IRA within the 10-year period as mandated by the SECURE Act, they could face significant penalties. The IRS imposes a 25% penalty on any remaining balance that was not distributed within the 10 years. This penalty can be reduced to 10% if the error is corrected within two years.
Additionally, any remaining balance is still subject to ordinary income taxes upon withdrawal, further increasing the financial burden.
No Early Withdrawal Penalties
Non-spouse beneficiaries are not subject to the 10% early withdrawal penalty, regardless of their age when they inherit the 401(k). However, all distributions are still subject to income tax.
These rules provide non-spouse beneficiaries flexibility in managing inherited assets, though it’s important to plan for the tax implications of required withdrawals.
Naming Multiple Beneficiaries and Updating Designations
A 401(k) allows you to name more than one beneficiary, and you can decide exactly how the account will be divided. For example, you might leave 50% of the balance to a spouse and 25% each to two children, or you could assign equal shares among several beneficiaries. If you don’t specify percentages, most plans will divide the account equally among the named beneficiaries. This flexibility makes it possible to align your retirement account with your broader estate planning goals, whether that means providing for family members, supporting a charitable cause or both.
Keeping beneficiary designations current is just as important as deciding who gets what. A 401(k) beneficiary form typically overrides instructions in a will or trust, which means your account could go to someone you no longer intend. For instance, if you named a spouse as your beneficiary but later divorced without updating the form, that ex-spouse may still legally inherit your 401(k). Similarly, if you welcomed new children or grandchildren but never added them, they could be left out entirely.
Life events such as marriage, divorce, the birth of a child or the death of an existing beneficiary are all times to review your designations. Many people also make it a practice to check beneficiary forms every few years, even if nothing has changed, to confirm that the paperwork on file matches their current wishes.
Taking the time to name multiple beneficiaries and update designations regularly helps ensure that your 401(k) assets are distributed according to your wishes and can prevent unnecessary conflict among surviving family members.
Bottom Line

When someone inherits a 401(k), the rules depend on whether they are a spouse or not. Spouses usually have more choices, like rolling the account into their own or taking money out over time. Most non-spouse beneficiaries must take all the money out within 10 years, though some exceptions apply. These rules, updated by the SECURE Act and SECURE 2.0, guide how and when inherited 401(k) funds must be withdrawn.
Estate Planning Tips
- A financial advisor can recommend tax and asset distribution strategies to help manage your estate. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Gifting can be an effective estate planning strategy. SmartAsset’s gift tax limit guide breaks down the 2024 limit and lifetime exclusion.
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