What Happens to Your Spouse’s 401(k) When They Die?

When your spouse dies, their 401(k) does not pass through their will. Federal law makes you, the surviving spouse, the automatic primary beneficiary, and you get distribution choices no other beneficiary is offered. What happens to a spouse’s 401(k) when they die comes down to which of those choices you make in the weeks after the death, and the wrong one, especially if you are under 59½, can cost you thousands in avoidable taxes and penalties.

You Are Already the Beneficiary by Law

Under ERISA, the surviving spouse is the automatic primary beneficiary of a 401(k). Your spouse could not have named anyone else without your written, notarized or plan-witnessed consent.¹ A will does not override this. If a beneficiary designation exists that names someone other than you and you never signed a spousal consent, the designation is generally invalid. Raise it with the plan administrator; plans are required to follow ERISA’s rules, and an improperly consented designation can be reversed.²

First Steps

Contact the plan administrator early. That may be your spouse’s employer HR department or a recordkeeper like Fidelity, Vanguard, or Schwab. They control the account and set the claim process.

You’ll typically need to submit:

A certified death certificate. Order five to ten copies; every financial institution will want its own.
Government-issued photo ID.
The plan’s completed claim form, which asks you to identify yourself and select a distribution option.
Your marriage certificate, if the plan asks.

For larger balances, the plan or the receiving institution may require a Medallion Signature Guarantee, a specialized stamp available at participating banks and brokerages. A regular notary stamp is not the same thing.

One important warning: do not sign the claim form’s distribution election until you understand your options. The choice is often irrevocable, and the best option depends on your age and when you’ll need the money.

Your Four Distribution Options

Spousal Rollover Into Your Own IRA

You move the funds into your own IRA (or another qualified plan you own). Once transferred, the money is treated as if it were always yours, with your own withdrawal timeline and RMD schedule.³

Do it as a direct trustee-to-trustee transfer so the funds never pass through your hands. That avoids the mandatory 20% federal withholding that applies when money is paid to you first.⁴ The transfer itself is not taxable because the money stays inside a retirement account.

The catch: once the money is in your own IRA, your rules apply completely. If you’re under 59½ and withdraw, you owe the 10% early withdrawal penalty on top of income tax. This is where younger surviving spouses often make an expensive mistake by defaulting to the rollover.

Inherited (Beneficiary) IRA

Instead of taking the funds as your own, you transfer them into an inherited IRA titled to reflect the deceased owner and you as beneficiary, something like “John Doe, deceased, for the benefit of Jane Doe, beneficiary.” That titling preserves the account’s inherited status for tax purposes.

The advantage is that distributions from an inherited IRA are exempt from the 10% early withdrawal penalty at any age.⁵ You still owe ordinary income tax on withdrawals from a traditional 401(k), but you keep that extra 10%. Surviving spouses also get favorable RMD treatment here: you can delay withdrawals until the year your deceased spouse would have reached 73, or take distributions over your own life expectancy. Non-spouse beneficiaries don’t get either option; they face a strict 10-year depletion rule.⁶

Lump-Sum Distribution

You can take the entire balance as cash. The 10% early withdrawal penalty does not apply to distributions paid to a beneficiary after the account owner’s death, regardless of your age.⁵

But the whole balance from a traditional 401(k) becomes taxable ordinary income for the year you receive it. The plan withholds 20% for federal taxes, and that often isn’t enough.⁴ A $500,000 lump sum stacked on top of your other income can push you into the top federal brackets.⁷ The distribution is reported to you on Form 1099-R.⁸ For most surviving spouses, this is the least tax-efficient option.

Leaving the Funds in the Plan

Some plans let the surviving spouse leave the money in the deceased participant’s account. Many, especially smaller-employer plans, don’t. Even where allowed, you’re stuck with the plan’s investment menu, may face higher administrative fees as a beneficiary, and can be forced out later if the employer changes providers. A rollover or inherited IRA gives you more control.

The 59½ Decision

The choice between a spousal rollover and an inherited IRA turns almost entirely on whether you are under or over 59½.

If you are 59½ or older, the spousal rollover is usually the better move. You’re already past the early withdrawal age, so you can pull money from your own IRA without a 10% surcharge, delay RMDs until 73, and manage the account with full flexibility.

If you are under 59½ and may need the money before then, the inherited IRA is usually smarter. You can take distributions without the 10% penalty at any age. If you had rolled those same funds into your own IRA, every dollar withdrawn before 59½ would carry that extra hit. For a 45-year-old who needs $50,000 for living expenses, that’s $5,000 that never had to leave the family.

There is a hybrid path worth knowing about: start with an inherited IRA, take penalty-free distributions as you need them, and roll the remainder into your own IRA once you reach 59½. Confirm the timing with the plan administrator and a tax advisor before assuming it works in your situation.

Taxes on What You Take Out

Traditional 401(k)

Contributions went in pre-tax, so every dollar coming out is taxable as ordinary income. A rollover or transfer to an inherited IRA is not itself taxable because the money stays in a tax-deferred account. Tax hits only when you actually take distributions. A lump sum, by contrast, adds the entire balance to your adjusted gross income for the year, which can lift the marginal rate to 35% or the 37% top rate for 2026.⁷

Roth 401(k)

Roth contributions were made with after-tax dollars, so qualified distributions come out tax-free. The distribution qualifies if the Roth 401(k) has been open at least five taxable years and is made after the owner’s death.⁹

Rolling a Roth 401(k) into your own Roth IRA is not a taxable event, but the Roth IRA has its own separate five-year clock that starts with your first contribution to any Roth IRA. If you’ve had one open for five years or more, the rolled-in funds are immediately qualified. If this is your first Roth IRA, a new clock starts, and withdrawals of earnings before it runs could be taxable. The Roth 401(k)’s five-year period doesn’t carry over.

Filing Status Matters

For the year your spouse dies, you can generally still file jointly, which gives you the widest brackets.¹⁰ For the next two years you may qualify as a Qualifying Surviving Spouse if you have a dependent child at home and pay more than half the household costs. After that, single or head of household filing brings narrower brackets. A large distribution taken two or three years out can be taxed at a materially higher rate than the same distribution taken in the year of death.

State Tax

Most states tax retirement distributions as ordinary income. About a dozen exempt 401(k) and IRA distributions entirely, but the majority don’t. State tax can add 3% to 13% on top of the federal bill, so check your state before you commit to a strategy.

Required Minimum Distributions

How RMDs work on the inherited money depends on the option you chose.

With a spousal rollover, the funds merge into your own account and your own RMD clock applies. You don’t have to start until the year you turn 73.¹¹ That age rises to 75 for people born in 1960 or later starting in 2033.

With an inherited IRA, you can delay RMDs until the year your deceased spouse would have reached 73 (useful if your spouse was younger than you), or take distributions over your own life expectancy, which typically produces smaller annual withdrawals than the 10-year rule non-spouse beneficiaries face.⁶

If your spouse was already taking RMDs, you must take any remaining RMD for the year of death if they hadn’t already, calculated on your spouse’s life expectancy factor. After that, your elected method takes over.

Missing an RMD triggers a 25% excise tax on the shortfall, dropping to 10% if you correct it within two years.¹¹ If the miss happened because of your spouse’s death or genuine confusion, you can request a waiver on Form 5329 with a statement explaining the reasonable error and what you did to fix it.¹² The IRS grants these regularly when the shortfall was clearly unintentional.

Situations That Change the Answer

An Outstanding 401(k) Loan

If your spouse had an unpaid 401(k) loan, the remaining balance is typically offset against the account. The plan reduces the balance by the loan amount, and the offset is treated as a distribution. The tax on that offset falls on your spouse’s final return or the estate’s return, not on you, because you weren’t a party to the loan. The offset is reported on Form 1099-R, and if it qualifies as a Qualified Plan Loan Offset, the amount can be rolled to an eligible retirement plan by the tax filing deadline (including extensions) for the year of the offset.¹³ The practical effect: what you inherit is the account balance minus what your spouse still owed. A $30,000 loan against a $200,000 account leaves you $170,000.

A Former Spouse With a QDRO

A Qualified Domestic Relations Order from a prior divorce can override your rights. To the extent a QDRO treats the former spouse as the participant’s surviving spouse, you cannot be treated as the surviving spouse for that portion of the benefit.¹⁴ The plan is legally required to follow the order. Without a valid QDRO on file, the plan pays according to its own documents, which normally means you.¹⁵ If you suspect one exists, ask the plan administrator directly.

Multiple Beneficiaries or Community Property

If the account names more than one beneficiary, such as you and stepchildren, it must be split into separate inherited accounts by December 31 of the year after the death. Miss that deadline and distributions get calculated on the oldest beneficiary’s life expectancy, usually accelerating withdrawals for everyone. Your portion can still go into your own IRA and keep the favorable spousal treatment; non-spouse beneficiaries fall under the SECURE Act’s 10-year rule.⁶

In the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), the surviving spouse may have a legal claim to half of the account balance regardless of who is named beneficiary, because money earned during the marriage is treated as jointly owned. If your spouse named someone else, community property law may give you standing to challenge that designation for up to half.

The Estate Is Named as Beneficiary

If your spouse named their estate as the 401(k) beneficiary rather than you or another individual, the results are much worse. The account passes through probate, and the estate is treated as a non-individual beneficiary. That means you lose the ability to do a spousal rollover or use life-expectancy withdrawals.⁶ If your spouse died before their required beginning date, the account generally must be emptied within five years. If they died after that date, distributions follow the deceased owner’s remaining life expectancy. Either way, the tax-deferred growth window shrinks dramatically, and it’s not something you can fix after the fact.

Employer Stock in the Account

If the 401(k) held your spouse’s employer stock, a strategy called Net Unrealized Appreciation may be available. You transfer the stock into a taxable brokerage account and pay ordinary income tax only on its original cost basis in the year of transfer; the appreciation is taxed at long-term capital gains rates when you sell, topping out at 20% rather than the 37% ordinary-income top rate. The requirements are strict: a lump-sum distribution of the entire plan balance in a single tax year, with the account zeroed out by year-end. Death qualifies as a triggering event. Any partial distribution before the lump sum disqualifies NUA treatment. This works best when the stock has appreciated significantly on a low cost basis, and it’s complex enough to justify a tax professional before you commit.

1
Office of the Law Revision Counsel. 29 U.S. Code 1055 – Requirement of Joint and Survivor Annuity and Preretirement Survivor Annuity
2
U.S. Department of Labor. FAQs about Retirement Plans and ERISA
3
Internal Revenue Service. Retirement Topics – Death of Spouse
4
Internal Revenue Service. Topic No. 412, Lump-Sum Distributions
5
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
6
Internal Revenue Service. Retirement Topics – Beneficiary
7
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
8
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
9
Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
10
Internal Revenue Service. Filing Status
11
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
12
Internal Revenue Service. Instructions for Form 5329 (2025)
13
Internal Revenue Service. Plan Loan Offsets
14
U.S. Department of Labor. QDROs – The Division of Retirement Benefits Through Qualified Domestic Relations Orders
15
U.S. Department of Labor. Qualified Domestic Relations Orders Under ERISA – A Practical Guide to Dividing Retirement Benefits