When you die, your 403(b) passes directly to the person or people you named on your beneficiary designation form, not through your will. What happens to your 403(b) when you die then depends on two things: who inherits, and whether your contributions were traditional pre-tax or Roth. A surviving spouse has the widest set of choices and can often keep the money growing tax-deferred for decades. Most other beneficiaries have to empty the account within ten years. Roth dollars generally come out tax-free; traditional dollars are taxed as ordinary income when withdrawn.
The Beneficiary Form Controls Everything
Your 403(b) is a contract between you and the plan provider, and the beneficiary designation on file with that provider overrides your will. If your will leaves everything to your sister but your beneficiary form still lists an ex-spouse, the ex-spouse receives the account. The form names primary beneficiaries first in line and contingent beneficiaries who inherit only if the primaries have already died.
Plans covering public school employees and church plans are generally exempt from the federal Employee Retirement Income Security Act (ERISA), while plans at private 501(c)(3) employers are usually ERISA-covered.1eCFR. 26 CFR 1.403(b)-2 – Definitions The distinction matters for creditor protection and for whether your spouse’s written consent is required to name someone else. Your plan administrator can tell you which rules apply.
If No Beneficiary Is on File
When you never filed a form, or every named beneficiary has already died, your plan document’s default order takes over. Most plans send the money first to a surviving spouse, then to children, then to your estate. If it lands in your estate, it goes through probate: court-supervised distribution that can take months to two years, becomes part of the public record, and exposes the funds to creditor claims and administrative costs. Keeping the form current avoids all of that.
What a Surviving Spouse Can Do
A surviving spouse has three main paths, and the right one depends on their age and how soon they need the money.
Roll It Into Their Own Retirement Account
The most common choice is rolling the inherited 403(b) into the spouse’s own IRA or their own employer plan.2Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) After the rollover the account is treated as if the surviving spouse had always owned it. Required minimum distributions don’t begin until the spouse reaches their own RMD age, which is 73 for people born between 1951 and 1959 and 75 for those born in 1960 or later.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The tradeoff: withdrawals before age 59½ trigger the standard 10% early withdrawal penalty.
Move It Into an Inherited IRA
A spouse who needs access before 59½ can instead transfer the money into an inherited IRA and stay listed as the beneficiary. Withdrawals from an inherited IRA are not subject to the 10% early withdrawal penalty at any age.2Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) The spouse can also delay distributions until the year the deceased would have reached their own RMD age.
Elect to Be Treated as the Participant
Under Section 327 of the SECURE 2.0 Act, a surviving spouse who is the sole beneficiary can elect to be treated as though they were the original participant for RMD purposes.4Internal Revenue Service. Internal Revenue Bulletin 2024-33 If the account holder died before their required beginning date, the election applies automatically. The advantage is that RMDs are then calculated using the more generous Uniform Lifetime Table rather than the Single Life Table, producing smaller required withdrawals and leaving more in the account to grow.
The Ten-Year Rule for Everyone Else
Adult children, siblings, friends, and other non-spouse beneficiaries face a shorter clock. Under the SECURE Act, most non-spouse beneficiaries must empty the account by December 31 of the tenth year after the year of the account holder’s death.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs There is no option to stretch distributions across the beneficiary’s own lifetime.
Whether you can wait until year ten or must take money out each year depends on the account holder’s age at death. If the original owner died before their required beginning date, you can take the withdrawals on any schedule you like, as long as the balance is zero by the end of year ten. If the original owner had already reached their required beginning date, you must take annual minimum distributions in years one through nine and clear the remainder in year ten.5Federal Register. Required Minimum Distributions These final regulations took effect on January 1, 2025.
Missing a required annual distribution triggers an excise tax of 25% of the amount you should have taken. If you correct the shortfall within two years, the penalty drops to 10%.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Beneficiaries Who Can Still Stretch
A narrow group called eligible designated beneficiaries can take distributions over their own life expectancy instead of using the ten-year rule:
- The account holder’s own minor children, until they turn 21; then the ten-year clock starts. Grandchildren and stepchildren don’t qualify.5Federal Register. Required Minimum Distributions
- Beneficiaries who are disabled or chronically ill, for as long as they qualify.
- Beneficiaries no more than ten years younger than the account holder.5Federal Register. Required Minimum Distributions
How Inherited 403(b) Money Is Taxed
Traditional (Pre-Tax) Contributions
Every dollar withdrawn from a traditional 403(b) is taxed as ordinary income in the year the beneficiary receives it.2Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) For 2026, federal income tax rates run from 10% to 37% depending on total taxable income.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A beneficiary who saves the whole account for a single lump-sum withdrawal in year ten can push themselves into a much higher bracket for that year. Spreading withdrawals across the ten years, when the rules permit it, usually reduces the overall tax bill.
Roth Contributions
Roth 403(b) distributions, including earnings, are generally tax-free to the beneficiary, as long as the account has been open at least five tax years before the owner’s death.7Internal Revenue Service. Retirement Topics – Beneficiary The clock starts with the first Roth contribution, not the date of death. If the account is younger than five years, earnings withdrawn before the five-year mark can be taxable.
Federal Estate Tax
The full value of the 403(b) is included in your gross estate. For 2026, the federal estate tax exemption is $15,000,000 per individual, so most estates owe nothing.8Internal Revenue Service. Whats New – Estate and Gift Tax For estates above the exemption, the top federal rate is 40%.
When estate tax actually gets paid, beneficiaries may claim an “income in respect of a decedent” deduction on their personal income tax return in the year they receive the distribution. The deduction equals the portion of estate tax attributable to the inherited retirement account and prevents the same dollars from being fully taxed twice.9Office of the Law Revision Counsel. 26 U.S. Code 691 – Recipients of Income in Respect of Decedents The calculation is complex enough to warrant a tax professional.
If You Have an Outstanding 403(b) Loan
An unpaid 403(b) loan generally cannot continue on its original schedule after your death. The plan offsets the loan balance against the account, reducing what your beneficiaries receive.10eCFR. 26 CFR 1.72(p)-1 – Loans Treated as Distributions The offset amount is treated as a taxable distribution and reported on Form 1099-R.11Internal Revenue Service. Retirement Plans FAQs Regarding Loans So a $200,000 balance with a $30,000 outstanding loan leaves $170,000 in distributable assets, with the $30,000 loan offset taxed to either the decedent’s final return or the beneficiary depending on the plan and timing. Beneficiaries should ask the plan administrator about any outstanding loan early in the claims process.
Naming a Trust Instead of a Person
Some account holders name a trust as the 403(b) beneficiary, often to control how minors or a beneficiary with special needs receive the funds. This adds real complexity.
For the trust’s beneficiaries to be recognized as designated beneficiaries at all, the trust must qualify as a “see-through trust.” It has to be valid under state law, become irrevocable at the account holder’s death, have identifiable beneficiaries, and provide documentation of those beneficiaries to the plan administrator.5Federal Register. Required Minimum Distributions Fail those requirements and the account is treated as having no designated beneficiary, which can accelerate distributions and taxes.
Two structures are common, and they behave very differently:
- A conduit trust requires the trustee to pass every 403(b) distribution straight through to the trust beneficiary, where it’s taxed at that person’s individual rate. Depending on how the trust is drafted, the trustee may only need to distribute the annual minimum, which can force a large taxable payment in year ten.
- An accumulation trust lets the trustee keep distributions inside the trust. That protects the assets but hits a steep tax cost: trusts reach the top 37% federal income tax rate at just $15,650 of income in 2026, compared to over $640,600 for an individual filer.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Naming a trust as beneficiary is worth doing only with coordinated advice from an estate planning attorney and a tax advisor.
What Beneficiaries Are Protected From — and What They Aren’t
Creditor protection for an inherited 403(b) turns on whether the plan is covered by ERISA. ERISA-covered plans, mostly those at private 501(c)(3) nonprofits, generally provide strong federal protection even after the account holder’s death. Government 403(b) plans and church plans, which are exempt from ERISA, depend on state law, and that varies widely.
Once funds leave the plan, the picture changes. In Clark v. Rameker, the U.S. Supreme Court held that inherited IRAs are not “retirement funds” protected from creditors in bankruptcy, reasoning that the heir cannot add contributions, must take withdrawals regardless of age, and can spend the money for any purpose without penalty.12Justia. Clark v. Rameker, 573 U.S. 122 (2014) The case addressed inherited IRAs specifically, but the same logic could reach 403(b) funds once they’re rolled into an inherited IRA. A surviving spouse who rolls the money into their own retirement account, rather than an inherited account, sidesteps this problem.
Claiming the Money
After your death, your beneficiary contacts the plan administrator or the financial institution holding the account. The claim typically requires a certified copy of the death certificate and a benefits claim form; some institutions want the form notarized, and some require a Medallion Signature Guarantee for large transfers.
Once everything is submitted and verified, the institution either sets up an inherited account in the beneficiary’s name or pays a lump sum, depending on the beneficiary’s election. The process usually takes two to six weeks after complete documentation is received. If the administrator delays, the beneficiary can escalate through the employer’s HR department, and for ERISA-covered plans through the Department of Labor.
The plan issues a Form 1099-R for each year in which distributions are made, using distribution code 4 to identify the payment as going to a deceased participant’s beneficiary.13Internal Revenue Service. Instructions for Forms 1099-R and 5498 Under the ten-year rule, a separate 1099-R will typically arrive for each year a withdrawal is taken.