Retirement Account Beneficiary Rules: 401(k), IRA & Pension

Retirement account beneficiary rules come down to a single document: the designation form on file with the plan administrator or IRA custodian controls who inherits a 401(k), IRA, or pension, and it overrides anything your will says. The rules differ by account type, marital status, and the beneficiary’s relationship to you, and small mistakes on the form can send a lifetime of savings to the wrong person.

The Designation Form Overrides Your Will

Retirement accounts pass outside of probate. When you open a 401(k) or IRA, the custodian agreement gives you the right to name beneficiaries directly on the account, and at your death the plan administrator distributes the funds according to that form. A will or living trust has no authority over these assets unless the designation form itself names your estate as the beneficiary, which creates separate problems.

The upside is speed: beneficiaries can typically claim the funds within weeks. The downside is that an outdated form can send your entire retirement balance to an ex-spouse, a deceased person’s estate, or someone you haven’t spoken to in decades. Nothing else you sign can fix a wrong name on the form.

Primary and Contingent Beneficiaries

Your primary beneficiary is the person or people who receive the balance at your death. If you name more than one, you assign each a specific percentage, and the percentages must total 100%. A contingent beneficiary inherits only if every primary beneficiary has already died. Without a contingent, the account can default into your estate.

Most forms also let you choose between per stirpes and per capita distribution. These terms control what happens when a named beneficiary dies before you do. Under per stirpes, a deceased beneficiary’s share flows down to that person’s children. If you named your son for 50% and he dies before you, his kids split his half. Under per capita, the deceased beneficiary’s share gets redistributed equally among the surviving beneficiaries at the same level, so your son’s 50% would go to your other named beneficiaries rather than to his children.

Most financial institutions offer a checkbox for each method. If you skip the choice, the plan administrator applies a default that may not match your intentions. For families with multiple generations in play, picking the wrong option can reroute significant money in ways nobody expected.

Spousal Rights on a 401(k) or Pension

Federal law gives your spouse an automatic claim to your 401(k) and pension. Under ERISA and the Internal Revenue Code, your spouse is the default beneficiary of any employer-sponsored retirement plan. Even if you fill out a form naming your child, a sibling, or anyone else, that designation is legally invalid unless your spouse formally waives the right.¹

The waiver has strict requirements. Your spouse must consent in writing to the specific non-spouse beneficiary you want to name. The consent must acknowledge the effect of giving up the right to the retirement funds. And the signature must be witnessed by either a plan representative or a notary public.² A general waiver that doesn’t name the intended beneficiary is typically rejected. If the witnessing requirement isn’t met, the spouse can challenge the designation in federal court and will likely win. The person you actually wanted to inherit gets nothing.

IRA Rules and Community Property

Individual retirement accounts do not carry the same automatic spousal protection. Because IRAs aren’t governed by ERISA’s spousal consent rules, you can generally name any person or entity as your IRA beneficiary without your spouse’s signature.³

There is an important catch in community property states. Nine states treat assets acquired during marriage as jointly owned by both spouses, and four additional states allow couples to elect community property status. In these jurisdictions a spouse may have a legal claim to some or all of an IRA regardless of the designation form, and IRA custodians there often require spousal consent as a matter of practice. If you live in a community property state and want to leave your IRA to someone other than your spouse, get your spouse’s written waiver anyway.

This distinction matters when rolling over a 401(k) into an IRA. The moment the funds leave the employer plan, ERISA’s spousal protections generally disappear. A spouse who was automatically entitled to the entire 401(k) balance may have no federal claim to the same money once it sits in an IRA. If you’re married and rolling over a 401(k), think carefully about the beneficiary designation on the receiving IRA.

Divorce Does Not Automatically Remove an Ex-Spouse

Divorce is where beneficiary designation mistakes cause the most damage. More than 40 states have some form of revocation-on-divorce statute that automatically strips an ex-spouse from wills, insurance policies, and certain financial accounts after a final decree. Those state laws do not apply to ERISA-governed plans like 401(k)s and pensions.

The Supreme Court settled this in 2001. In Egelhoff v. Egelhoff, the Court held that ERISA preempts state revocation-on-divorce laws because allowing 50 different state rules would undermine the nationally uniform administration ERISA requires. The plan administrator’s only obligation is to follow the designation form on file.⁴ If your ex-spouse is still named on your 401(k) when you die, the plan pays your ex-spouse. Your current spouse, your children, and your estate have no recourse against the plan.

For IRAs, state revocation statutes may apply, but relying on them is a gamble. About 26 states automatically revoke an ex-spouse’s beneficiary status on IRAs after divorce; others don’t. The safest approach is to update every designation form yourself the moment a divorce is final.

A Qualified Domestic Relations Order can also assign retirement benefits to a former spouse as part of a divorce settlement. A QDRO can protect a former spouse’s access to survivor benefits by directing the plan to pay all or part of the benefit to the ex-spouse as an alternate payee. Both the divorce decree and the QDRO must clearly state which survivor benefits go to the alternate payee.⁵ Once a participant begins receiving benefits, the named beneficiary generally cannot be changed, so getting the QDRO right during divorce proceedings is critical.

The SECURE Act 10-Year Rule

The SECURE Act changed how inherited retirement accounts are distributed. Most non-spouse beneficiaries who inherit after 2019 must withdraw the entire account balance within 10 years of the original owner’s death.⁶ The old rule that let beneficiaries stretch distributions over their own life expectancy is gone for most heirs.

Whether you must take annual withdrawals during that 10-year window depends on when the original owner died relative to their required beginning date. If the owner died before they were required to start taking distributions, you can wait until the end and take everything in year 10. If the owner died after their required beginning date, you must take annual minimum distributions each year based on your life expectancy, and then empty whatever remains by the end of year 10.⁶ Missing an annual distribution when one is required triggers an excise tax.

Five categories of eligible designated beneficiaries can still stretch distributions over their own life expectancy:

A surviving spouse, who can also elect to treat the inherited account as their own.
A minor child of the account owner, eligible only until reaching the age of majority, at which point the 10-year clock starts.
A disabled individual, as defined under IRC Section 72(m)(7).
A chronically ill individual, meaning someone with an indefinite condition expected to be lengthy in nature.
Any individual not more than 10 years younger than the account owner.

These rules apply to both 401(k) plans and IRAs.⁷ Everyone else, including adult children, siblings, and friends, falls under the 10-year rule.

Tax Treatment: Traditional vs. Roth Inherited Accounts

The tax treatment of an inherited retirement account depends almost entirely on whether the account is traditional or Roth. For a traditional IRA or 401(k), every dollar you withdraw is taxed as ordinary income in the year you take the distribution. The 10% early withdrawal penalty does not apply to inherited accounts, even if the beneficiary is under 59½.

Inherited Roth accounts work differently. Withdrawals of contributions are always tax-free. Withdrawals of earnings are also tax-free as long as the original Roth account was open for at least five years before the owner died. If the Roth account was opened less than five years before death, earnings may be taxable until the five-year mark passes, though the contributions portion remains tax-free.³

Both types face the same 10-year distribution requirement, but the tax impact is very different. A beneficiary forced to empty a $500,000 traditional IRA within 10 years could face six figures in federal income tax, depending on their other income and bracket. The same beneficiary inheriting a Roth IRA of equal size might owe nothing. If you hold both traditional and Roth accounts, consider which beneficiaries would benefit most from which type.

Minor Children, Trusts, and Special Needs Heirs

Naming a minor child directly as a beneficiary creates a legal problem. Minors can’t control high-value financial assets, so a court typically must appoint a guardian to manage the funds until the child reaches the age of majority. That process involves legal fees and ongoing court supervision.

Two common alternatives avoid the guardianship. The first is the Uniform Transfers to Minors Act, adopted in some form by most states, which lets you name a custodian who manages the money on the child’s behalf without court oversight. The second is naming a trust as the beneficiary. A properly drafted see-through trust allows the trust’s beneficiaries to be treated as the account’s designated beneficiaries for distribution purposes.⁸ To qualify, the trust must be valid under state law, become irrevocable at the owner’s death, and have identifiable beneficiaries. If the trust doesn’t meet these requirements, the IRS may not recognize any designated beneficiary, which can accelerate the distribution timeline and the resulting tax bill.

Beneficiaries With Disabilities

Naming a disabled family member directly as a beneficiary is risky for a different reason. A direct inheritance can disqualify them from need-based government programs like Supplemental Security Income and Medicaid, which impose strict asset limits (currently $2,000 for an individual). Even a modest retirement account could push them over that threshold.

A third-party special needs trust solves this. When structured correctly, the trust holds the inherited assets outside the beneficiary’s control, so the funds don’t count toward the asset limit for government aid. The trustee has discretion over distributions and can supplement the beneficiary’s government benefits without replacing them. The trust should name contingent beneficiaries other than the disabled person’s estate. If the estate is entitled to the remaining trust assets when the disabled beneficiary dies, government agencies that provided support can claim those assets to recoup costs.

Disabled and chronically ill beneficiaries also qualify as eligible designated beneficiaries under the SECURE Act, which means they can stretch distributions over their own life expectancy rather than being forced into the 10-year window.⁷ Combining stretch distributions with a properly drafted special needs trust is one of the most effective ways to protect a vulnerable heir.

Naming a Charity as Beneficiary

A qualified charity recognized as tax-exempt under IRC Section 501(c)(3) pays zero income tax on retirement account distributions it receives after your death. An individual inheriting a traditional IRA owes ordinary income tax on every dollar withdrawn; a charity owes nothing. The full value also qualifies for the estate tax charitable deduction, removing it from your taxable estate.

That makes retirement accounts one of the most tax-efficient assets to leave to charity. If your estate plan includes charitable giving, directing your IRA or 401(k) to the charity and leaving other, less tax-burdened assets to individual heirs can save your family a significant amount in total taxes. The charity designation goes on the same beneficiary form as any other recipient, and you can split percentages between a charity and individual heirs.

What Happens If No Valid Beneficiary Is Named

If you die without a valid beneficiary designation, the plan document’s default provisions take over. Most plans follow a standard order: surviving spouse first, then children, then parents, then siblings, and finally the estate. There is no universal federal requirement dictating this order for all plans. Each plan writes its own default rules, and some skip straight to the estate.

Defaulting to your estate is the worst outcome. The funds lose the ability to be distributed to a designated beneficiary under IRS rules, which can eliminate the stretch option for eligible designated beneficiaries and force faster liquidation. The account also becomes subject to probate, so creditors can reach it and the court controls who ultimately receives the money.

Qualified Disclaimers: Refusing an Inheritance

A named beneficiary can legally refuse an inherited retirement account through a qualified disclaimer. The IRS has specific requirements. The disclaimer must be in writing, must identify the account being refused, and must be delivered to the plan administrator or account custodian within nine months of the original owner’s death.⁹

The disclaiming beneficiary cannot have accepted any benefits from the account before filing. Taking a single distribution, directing the custodian to invest the funds, or receiving interest payments can disqualify the disclaimer. Once disclaimed, the account passes to the next beneficiary in line, typically the contingent beneficiary, as if the disclaiming person never existed. The person disclaiming cannot direct where the funds go. If you try to specify a recipient, the IRS treats it as a gift with entirely different tax consequences.

Common reasons to disclaim include pushing the funds to a lower-tax-bracket family member, preserving a surviving spouse’s eligibility for government benefits, or redirecting assets to the next generation when the primary beneficiary doesn’t need them. A well-structured designation with named contingent beneficiaries makes disclaimers far more useful.

Keeping the Form Current

The designation form itself asks for basic information for each beneficiary: full legal name, Social Security number, date of birth, and current mailing address. You assign each primary and contingent beneficiary a specific percentage, and those percentages must total exactly 100% within each category. If the numbers don’t add up, the plan administrator will reject the form.

For employer-sponsored plans, the form is usually available through your company’s HR portal or benefits website. For IRAs, check the account documents section of your brokerage or custodian’s platform. After submitting, verify the update within a couple of weeks by checking your account online and requesting written confirmation for your records.

Life Events That Should Trigger a Review

Most people update their designations after a marriage or divorce, if they remember at all. Several other events warrant an immediate review:

Birth or adoption of a child. A new child won’t automatically appear on any designation form.
Death of a named beneficiary. If your primary beneficiary dies and you don’t update the form, the contingent inherits, which may or may not be what you want.
Remarriage. Your new spouse has automatic rights to your 401(k) and pension under federal law, but your IRA designation still names whoever you last put on the form.
A significant change in a beneficiary’s health or financial situation. A child who becomes disabled may need a special needs trust rather than a direct designation.
Rolling over a 401(k) to an IRA. The new IRA needs its own designation, and the spousal protections from the old plan won’t carry over.

A workable rule is to review all designation forms, including accounts with former employers, at least every two to three years and after any major life change. The few minutes it takes to verify the forms are current is trivial compared to the damage an outdated designation can cause.

1
Office of the Law Revision Counsel. 29 USC 1055 – Requirement of Joint and Survivor Annuity and Preretirement Survivor Annuity
2
Office of the Law Revision Counsel. 26 USC 417 – Definitions and Special Rules for Purposes of Minimum Survivor Annuity Requirements
3
Internal Revenue Service. Retirement Topics – Beneficiary
4
Legal Information Institute. Egelhoff v Egelhoff (2001)
5
Pension Benefit Guaranty Corporation. QDROs: The Division of Pensions Through Qualified Domestic Relations Orders
6
Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements
7
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
8
Internal Revenue Service. Internal Revenue Bulletin 2024-33
9
eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer