What do I do with my 401k when my spouse dies?

If you are a beneficiary of your deceased spouse’s IRA or 401(k), you can:

1. Withdraw all the money now (and pay whatever income tax is due).
2. Roll over the account into your own traditional or Roth IRA—an existing account or a new one you open now.
3. Put the money in an “inherited IRA.”

What happens when a 401k is inherited?

When a person dies, his or her 401k becomes part of his or her taxable estate. You will need to pay income tax on the amount you receive (in addition to any estate tax owed), but there are different strategies you may be able to use to spread out or delay the tax burden, especially if you are the spouse*.

What happens to your 401k when your spouse dies?

A spouse who has inherited a 401k plan is expected to have withdrawn all the money in the account within 5 years after their spouse’s death. You have the option of taking out a lump-sum distribution or the required minimum contributions.

When do you pay taxes on a deceased spouse’s retirement account?

Normally, the IRS applies a tax penalty to withdrawals from retirement accounts before you turn 59 1/2, but a dead spouse’s account is an exception. You still pay regular income tax on the money, however.

Can a spouse be the primary beneficiary of a 401k?

When you assign a primary beneficiary this can be any one of your choosing, it doesn’t necessarily have to be your spouse. However, if your spouse is not the primary beneficiary of your 401k plan, legally you are required to get the consent of your spouse in writing.

What happens to your taxes if you inherit an IRA or 401k?

If the IRA or 401(k) becomes a part of the deceased spouse’s A or B Trust due to the beneficiary designation and/or a disclaimer by the surviving spouse, then the income taxes will still be deferred until the surviving spouse makes a withdrawal from the account.