What Happens to a 401(k) Account After a Participant Dies? A Guide for Beneficiaries

Losing a loved one is never easy, and dealing with their financial accounts can be overwhelming. If someone you love had a 401(k) plan, understanding what happens next can help you navigate the process of claiming their benefits.

This article explains what happens to a 401(k) after the account holder dies and how beneficiaries can access those funds.

When a 401(k) participant dies, their account does not become part of their will or estate (unless no beneficiary is designated). Instead, it is distributed directly to the designated beneficiary listed on the plan.

NestEggs begins the process once we are notified of the participant’s death.

The account is paid to the named beneficiary on file, which overrides any instructions in a will.

Types of Beneficiaries:

• Primary Beneficiary: First in line to receive the assets

• Contingent Beneficiary: Receives the assets if the primary beneficiary has also passed away

Important: If no beneficiary is designated, the plan’s default rules apply (often the spouse, estate, or next of kin).

Spouses have special rights:

• In many plans, a surviving spouse is the automatic beneficiary unless they waived this right in writing.

• A spouse beneficiary can:

  • Leave the funds in the 401(k)

  • Roll them into their own IRA

  • Take distributions or set up a beneficiary account

Spouses are not required to take immediate distributions unless the participant had reached their Required Minimum Distribution (RMD) age.

Non-spouse beneficiaries have a few options:

• Transfer the funds into an inherited IRA

• Take a lump sum distribution (subject to income tax)

• Set up a beneficiary 401(k) account, if the plan allows it

Under current IRS rules, non-spouse beneficiaries typically must fully withdraw the account within 10 years of the participant’s death, unless they qualify for an exception (e.g., disabled or minor child).

Here’s what a beneficiary should do:

Step 1: Notify the Plan Administrator

• Contact NestEggs as soon as possible

• Provide the participant’s name, date of death, and your relationship

Step 2: Submit Required Documents

• Death certificate

• Proof of identity (e.g., driver’s license, Social Security number)

• Completed claim or distribution request form

• Spousal consent, if required (in rare cases)

Step 3: Choose a Distribution Option

• Lump sum, rollover to an IRA, or periodic payments

• Consider tax implications before making your choice

A tax or financial advisor can help you choose the best strategy based on your financial situation and timeline.

• 401(k) distributions to beneficiaries are subject to income tax, except for Roth 401(k) funds (if the 5-year rule is met)

• Inherited accounts grow tax-deferred until distributed

• You cannot roll inherited funds into your own 401(k)—they must go to an inherited IRA

For current participants, keeping your 401(k) beneficiary designations up to date is crucial—especially after life events like marriage, divorce, or the birth of a child.

You can update your beneficiaries:

• Online through your NestEggs account

• Using a paper form provided by NestEggs

Your 401(k) will be distributed according to your most recent beneficiary designation on file—not your will.

Claiming a loved one’s 401(k) doesn’t have to be complicated—but it does require attention to detail and thoughtful decision-making. Take your time, ask questions, and get the support you need to make the best choice for your situation.