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What is a 401k Beneficiary?

A 401(k) beneficiary is the individual designated to inherit the funds of a 401(k) account upon the account holder's death. It's a crucial decision, ensuring your retirement savings are passed on according to your wishes. Selecting the right beneficiary can offer peace of mind and financial security to loved ones. Who have you entrusted with your legacy? Continue reading to ensure your choice aligns with your intentions.
A. Gabrenas
A. Gabrenas

A 401K beneficiary is a person who is chosen to inherit the money in another person’s 401K retirement plan savings account, should that individual die while there is still money in the account. If 401K owners want to ensure certain people get their 401K funds upon their death, rather than having it go to their estate, they must usually designate a beneficiary in writing. In the U.S., there is a federal law that stipulates a married person’s spouse is automatically the 401K beneficiary unless the spouse expressly gives up this privilege. Other possible 401K beneficiaries include parents, children, domestic partners and trusts.

When saving money toward retirement, many people choose to invest in a 401K savings plan. Under normal circumstances, a person is generally not eligible to take distributions from the plan until he or she reaches a set age, usually around 60 years old, or experiences certain financial hardships. Even when a person begins taking distributions, he or she usually takes only a portion of money out of the 401K at a time. When a person dies, the money is usually given to the 401K beneficiary the person has previously named.

Typically, a 401K beneficiary is named when a person first sets up a 401K account. A person is usually given a form prompting the naming of at least one beneficiary, often with the option to split the proceeds between multiple beneficiaries.

In the U.S., federal law stipulates that a married person’s spouse is automatically the 401K beneficiary.
In the U.S., federal law stipulates that a married person’s spouse is automatically the 401K beneficiary.

In the U.S., if a person is married, his or her spouse is automatically the primary beneficiary, whether listed on the form or not, unless the spouse agrees to waive his or her right to this in writing. Even if a person is separated from his or her spouse at the time of death, unless a waiver has been signed, the 401K proceeds will generally still go to the estranged spouse. Due to this, and other possible unintended scenarios, experts agree that it is important to periodically update one’s beneficiary form to ensure it is current, especially after a significant change in status, such as a marriage or divorce.

Spouses are the automatic beneficiary for married individuals.
Spouses are the automatic beneficiary for married individuals.

While spouses are the automatic beneficiary for married individuals, there are many other options for the naming of a 401K beneficiary. For example, if a person has children, he or she may name the children or, if the children are under 18, an authorized trustee, as 401K beneficiaries. Young adults may name their parents or siblings. A person who is not married but has long-time domestic partner may name the partner as a 401K beneficiary. Still others may name a trust as the beneficiary, leaving the trustees to designate the 401K proceeds as they see fit.

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    • In the U.S., federal law stipulates that a married person’s spouse is automatically the 401K beneficiary.
      By: bramgino
      In the U.S., federal law stipulates that a married person’s spouse is automatically the 401K beneficiary.
    • Spouses are the automatic beneficiary for married individuals.
      By: JackF
      Spouses are the automatic beneficiary for married individuals.
    • People are generally not eligible to take distributions from a 401K until they reach a set age, usually around 60 years old.
      By: wildworx
      People are generally not eligible to take distributions from a 401K until they reach a set age, usually around 60 years old.