What Happens to a 401(k) When You Die?
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Well, come back. It's been and friday another special edition of money girl where I answered your burning money questions today he's topic comes from strain of us who says, Laura, i've been a long time listener and love your podcast. I need a little help for my sister in law, who recently got divorced, but before their divorce order was finalized, her x spouse suddenly passed away.

He is the beneficiary of half of his four o one key, and their two adult children are the beneficiaries of the other half. Will the three of them inherit, or does the account have to go into his estate screen of us? Thank you for the question and your kind words.

And i'm so sorry your sister in law and her family are going through this difficult time while thinking about your death isn't pleasant. Making the right plans is critical. This podcast will review what happens to your four o 1k or other workplace retirement plan。

When you die, understanding the rules is essential so that people you love get the money you've work so hard to save. Welcome back, everyone. Thanks for joining me on episode eight hundred eighty three.

I'm lara Adams s, an award winning author, finance spokesperson, money speaker, founder of the money stack, a sub stack newsletter and host of money girl with over forty three million downloads. If you're getting value from the free content we love creating, please subscribe. And we'd also love you to submit a five star rating or review.

And if you have a question you want me to cover on a finance friday, send IT. You can leave IT on our voice, mae, by calling three zero two three six four zero three zero eight. You can also send me an email and sign up for the free monday stack newsletter when you visit Laura d atoms 点 com。

Let's talk about what exactly a four o one k beneficiary is. When you enroll in a retirement account, you will always be prompted to name one or more beneficiaries on a designation form. If you're married, the primary beneficiary is assumed to be your surviving spouse.

In fact, if you name anyone other than your spouse as beneficiary, they have to waive their right to inherit your retirement plan. In writing, if you're unmarried or your spouse waves their right to your retirement funds, you can leave IT to anyone you like, like siblings, children or even a charity. You can imagine a situation where a widow remarry and wants to ensure her children inherit her for a one key instead of her second husband.

In that situation, a spouse would need to wave their inheritance or give written consent to acknowledge that they're not the beneficiary. You can have multiple beneficiaries and allocate a percentage of your account to them. That adds up to one hundred percent.

It's wise to name one or more primary and contingent ent beneficiaries. For example, you might name your styles a primary beneficiary and your sister a contingent in case your spouse is also deceased when you die. If you name retirement account beneficiaries, your account goes to them outside of probated.

Probated is a potentially lengthy legal process that reviews your assets and then transfers them to the new owners. So strain of us, your sister in law and her children will inherit her deceased exposes retirement plan outside of any proof ate proceedings. Now, if you take anything away from this podcast, I want you to be aware that the beneficial is named in your retirement plan, inherit IT, even if you have a will that says something else.

In other words, retirement beneficiaries, super seed your will. For instance, if you leave an x spouse as a beneficiary on your retirement plan, they will receive IT even if your Willys explicitly to disappoint IT the x spouse. If you don't name a for a one kb beneficiary and you're married, your sound automatically inherits the account, but if you have no spouse or retirement plan beneficiary, you for a one k becomes part of your estate and we'll go through probated with the rest of your belongings.

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There's another way to name beneficiaries on your retirement plan called per stupid. That's a latten for buy roots. Let's say you want your retirement money to go to the children of a beneficiary who dies before you do.

In that case, you can use a person's designation, meaning their inherits goes to their child or their children. For example, let's say you're unmarried and your four one k beneficiaries are your brother and your sister fifty. Your sister has a daughter and you'd like the daughter to receive her mother's portion of your account if her mother dies.

But if your sister dies before you, your brother would receive one hundred percent of the account and your knees would receive zero. However, if you indicate on your retirement plan beneficiary form that your sister's portion is per stop is her daughter would receive the fifty percent portion and your brother would receive fifty percent. So making a perturb ece designation is kind of A A backstop to make sure that if a beneficiary dies, the portion that would have gone to them will pass through to their children.

Now if you're a surviving spouse who inherits a workplace retirement plan, you have several options for managing that money. You can roll over the funds into your existing for a one k, if you have one. And if IT accepts, roll vers.

You can roll over the funds into a new or existing I R. A or you can take a lump S M distribution, but that means paying taxes, any previously on text portion in the account. Now if you're a surviving non spouse beneficiary, like a sibling, parent or friend, you cannot roll over inherit for a one k funds into your retirement account.

With limited exceptions, you must empty IT within ten years of the owners death. Only minor children of the deceased, or those who are chronically ill or disabled who are ten years in Younger than me, account owner at death are allowed to spread out required minimum distributions over their life expectancy. For everyone else who is a non spouse beneficiary of a foro one cae, you've got three options.

You can take a taxable lump, some distribution, you can transfer IT to a newly created I R. A, or you can leave the funds in the same account to withdraw. Over the next decade, the best starting point for your sister in law and children will be to transfer their inherit portions to a new I R A.

If it's a traditional four o one k, we'll open a traditional I R A and need to empty that and pay taxes on withdrawls over a maximum ten year period. However, if they inherit a rough for a one k they'll to open a rough I R A and they won't have any R M D or taxes to pay. That's the beauty of a ogh funds.

There is no tax to pay on that account. So as you can tell, inheriting retirement accounts can be a little complicated. I would recommend to prevent any errors that you get guidance from a qualified tax professional.

Also remember that after any significant life event, like having a child, adopting a child, getting married, getting divorce or losing a spouse, you should update your retirement plan beneficiaries. Depending on your plan, you may be able to a beneficiary designation online. As I mentioned, even if you update your will, that doesn't change who inherits your retirement accounts.

Sorry of us. Thank you so much for sending in the question. I hope this has been helpful to you and your sister in law.

That's all for now. I'll talk to you soon. Until then, here's to living a richer life. Many girl is a quick and dirty tips podcast. I want to think our terrific team still rooky b audio engineers, the show brand engages as our director of holy hutchins is our digital Operation specialist, Morgan Christian son is our advertising Operation specialist, diva thomlinson our marketing and publicity associated and the fanie hoops .

is our marketing contractor.

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We'll teach professional skills to help you pursue your goals like business management to planning and effective communication. And you're going apply these skills right away. A different future is closer than you think with captain university. Learn more ecpa A T eat you.