Does a 401(k) Get Passed Onto Children?

by Sara Melone ; Updated April 19, 2017
A 401(k) can continue to grow for your children's retirement.

A 401(k) plan is designed to help you save for your retirement, and ideally, you won't outlive your money. This means that there's a good chance there will still be funds in your 401(k) plan when you pass away. If this occurs, the money is passed on to your beneficiaries. To ensure the funds are passed on to your intended beneficiaries, it's important that you set up your 401(k) properly and regularly update your beneficiary designations.

Your Spouse's Rights

If you are married at the time of your death, chances are your 401(k) funds will automatically pass to your spouse. A spouse is the most commonly named beneficiary with children typically listed as contingent beneficiaries. Federal law mandates that your spouse is the automatic beneficiary of your 401(k) and other retirement accounts, unless you make alternate preparations. This would include having your spouse sign a waiver to allow your 401(k) to pass on to your children.

No Spouse

If there is no spouse involved, it is far more likely your 401(k) will automatically pass to your children as your next of kin. In the event your spouse is deceased at the time of your death or passes away soon after, your money generally goes to your children, particularly if you have named them as contingent beneficiaries to your spouse. Likewise, if you are divorced, you may name your children as the sole beneficiaries of your 401(k) plan.

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Trust Beneficiary

If you want your 401(k) funds to pass on to your children regardless of your marital status, you can set up a trust and put your 401(k) in it. By naming a neutral third party as the trustee beneficiary, you can exert greater influence over the management of your assets following your death. You may even be able to designate the distribution of your 401(k) to your spouse and children over a specific period of time. An estate planner can guide you on the laws pertaining to your state, and help you make the best decision for your situation.

No Beneficiary

If you fail to name a beneficiary, your 401(k) funds may simply be included in the rest of your estate along with other assets and debts. If your heirs choose to go to probate court, there is a chance they may be able to rightfully access these funds. If there are claims against your estate from creditors, however, your 401(k) may be used to satisfy these debts.

About the Author

Sara Melone is a mother of three and a graduate of UNH. With prior careers in insurance and finance, photography, as well as certifications in fitness and nutrition, Melone draws directly from past experience and varying interests. She contributes with equal passion to birth journals, investment blogs, and self-help websites.

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