What Happens to Your 403(b) When You Die: Beneficiary Options and Taxes

When you die, the balance in your 403(b) passes directly to the person you named on the plan’s beneficiary form, skipping your will and probate entirely. What happens to a 403(b) when you die after that point depends almost entirely on who that beneficiary is: a surviving spouse has the most flexibility, most other beneficiaries must empty the account within ten years, and a small group of “eligible designated beneficiaries” can still stretch withdrawals over their own lifetime.¹

Who Actually Gets the Money

The beneficiary designation on file with your plan provider controls. It is a contract between you and the provider, and it overrides your will. If your will leaves everything to your sister but your 403(b) beneficiary form still names your ex-spouse, the ex-spouse gets the account. Courts enforce this consistently, and it catches families off guard more often than you’d expect.

You can name a primary beneficiary and a contingent beneficiary who inherits only if the primary has already died or disclaims. Most providers let you split the account among several people by percentage. Reviewing the form after a marriage, divorce, or birth is one of the simplest ways to prevent the money from landing with the wrong person.

Spousal Consent Under ERISA

Not every 403(b) treats beneficiary choice the same way. Plans sponsored by public schools, government entities, and churches are generally exempt from ERISA. Plans run by private nonprofits often fall under ERISA, and those plans require your spouse’s written consent before you can name anyone else as primary beneficiary. Name a child or a sibling without a signed spousal waiver and the designation may not hold up.

Naming a Trust

Some account holders name a trust instead of a person, usually to control how a minor child or a financially unreliable heir uses the money. A trust can qualify for individual beneficiary treatment if it is valid under state law, becomes irrevocable at death, has identifiable beneficiaries, and is provided to the plan administrator by October 31 of the year after your death. A trust that fails any of those conditions is treated as a non-individual beneficiary, which typically forces faster distributions.

If No Beneficiary Is on File

When no valid beneficiary is on file, the plan’s default rules take over. Most plans go to the surviving spouse first and then to the estate. Landing in the estate is the worst tax outcome. An estate has no life expectancy, so the 10-year rule doesn’t apply; instead, the balance typically must be distributed within five years of death.² The funds also pass through probate, and the heirs who eventually receive the money lose the ability to do a direct rollover into an inherited IRA.

What a Surviving Spouse Can Do

A surviving spouse has more choices than any other beneficiary. The right one depends on the spouse’s age, income, and whether they need cash now.

Roll the 403(b) into their own IRA or employer plan. The spouse then treats the money as their own retirement savings, delays withdrawals until their own required beginning age, and lets the account keep growing tax-deferred. This is the most common choice for a spouse who is still working.³
Stay as beneficiary on the original account. Distributions are based on the spouse’s own life expectancy. This is useful for a spouse under 59½ who needs access without triggering the 10% early withdrawal penalty that would apply to their own IRA.
Take a lump sum. The whole balance is taxable as ordinary income that year, which works only for smaller accounts.

If the spouse stays a beneficiary rather than rolling the money over, distributions generally must begin by December 31 of the year after the account holder’s death, or by the year the deceased would have reached age 73, whichever is later.¹

The 10-Year Rule for Everyone Else

The SECURE Act, passed in 2019, ended the old “stretch” strategy that let non-spouse beneficiaries take small distributions over their entire lifetime. For deaths after 2019, most non-spouse beneficiaries must empty the account by December 31 of the tenth year after the account holder died.²

There is one wrinkle that trips people up. If the account holder died after reaching their required beginning date (currently age 73), the beneficiary cannot just wait until year ten and cash out. Regulations the IRS finalized in 2024 require annual distributions during the 10-year period whenever the original owner had already started, or was required to start, taking withdrawals. Those annual amounts are based on the beneficiary’s life expectancy, with whatever remains due by the end of year ten.⁴

If the owner died before their required beginning date, there are no mandatory annual withdrawals. The beneficiary can pull money out at any pace during the decade, so long as the account is empty by the end of year ten. Spreading withdrawals across several years usually keeps the beneficiary in a lower tax bracket than a single large distribution would.

Beneficiaries Who Still Get More Time

A narrow group of non-spouse beneficiaries can still stretch distributions over their own life expectancy. The IRS calls them eligible designated beneficiaries:

A surviving spouse.
A minor child of the account holder. Only biological or legally adopted children qualify, and only until they turn 21. Once the child turns 21, the 10-year clock starts, so the account must be empty by age 31.
A disabled individual, as defined under the tax code.
A chronically ill individual, unable to perform daily living activities without assistance.
Any beneficiary not more than ten years younger than the deceased, which often covers siblings and partners close in age.

Grandchildren, nieces, nephews, and adult children do not qualify and must follow the 10-year rule.²

What the Beneficiary Will Owe in Taxes

Inheriting a 403(b) does not trigger income tax at the moment of death. Tax comes due as money is withdrawn, and the amount depends on whether the account held traditional or Roth contributions.

Traditional 403(b)

Every dollar withdrawn from an inherited traditional 403(b) is taxed as ordinary income in the year received.³ There is no capital gains rate and no special lump-sum break. A beneficiary who withdraws $150,000 in one year adds the full amount to their other income, which can push them into a higher bracket. Spreading withdrawals across tax years, when the rules allow it, is usually the smarter move.

Roth 403(b)

Inherited Roth 403(b) accounts are treated much more favorably. Contributions come out tax-free. Earnings are also tax-free if the original account holder opened the Roth 403(b) at least five years before death; if the account is younger, the earnings portion may be taxable.² Roth beneficiaries still have to follow the same distribution timeline rules.

Mandatory Federal Withholding

If a beneficiary takes a distribution that qualifies as an eligible rollover distribution and does not send it directly to another retirement account, the plan must withhold 20% for federal taxes. The beneficiary cannot opt out.⁵ A direct rollover to an IRA or inherited IRA avoids the withholding entirely.

Estate Tax

The 403(b) balance is included in the deceased’s taxable estate. The 2026 federal estate tax exemption is $15,000,000, so the vast majority of estates owe nothing at the federal level.⁶ State estate taxes, where they exist, often kick in at lower thresholds.

Penalties for Missing a Required Withdrawal

A beneficiary who fails to take a required distribution owes a 25% excise tax on the amount they should have taken.⁷ The penalty drops to 10% if the shortfall is corrected within the correction window, which generally runs through the end of the second year after the year the distribution was missed.⁸

The IRS can waive the penalty entirely if you show the shortfall was due to reasonable error and you’re fixing it. That requires filing Form 5329 with an explanation attached.⁹ Missing a deadline is expensive, but usually fixable if you move quickly.

Refusing an Inherited 403(b)

A beneficiary who doesn’t want or need the account can formally refuse it through a qualified disclaimer. The funds then pass to the contingent beneficiary as if the primary beneficiary had died first. This can be useful when, for example, a well-off surviving spouse would rather send the money directly to the children.

A qualified disclaimer must be in writing and delivered within nine months of the account holder’s death. The person disclaiming cannot have already accepted any benefit from the account or directed where the money goes after the disclaimer.¹⁰ Miss the nine-month window and the option is gone.

How to Actually Claim the Account

The process is straightforward but paperwork-driven. You’ll need a certified copy of the death certificate, the deceased’s Social Security number, and your own government-issued ID. Contact the plan provider named on the account statements and request their beneficiary distribution form.

The form asks how you want to receive the funds: lump sum, periodic payments, or rollover. A non-spouse beneficiary electing a direct rollover has to make sure the receiving account is titled as an inherited IRA. A rollover into a regular IRA in the beneficiary’s own name is not allowed for non-spouse beneficiaries and can cause the entire balance to be treated as taxable income.³ Delays almost always come from missing documents or a name mismatch between the beneficiary form and the claimant’s ID, so it pays to have everything in order before submitting.

1
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
2
Internal Revenue Service. Retirement Topics – Beneficiary
3
Internal Revenue Service. Publication 571 (01/2026), Tax-Sheltered Annuity Plans (403(b) Plans)
4
Federal Register. Required Minimum Distributions
5
eCFR. 26 CFR 31.3405(c)-1 – Withholding on Eligible Rollover Distributions
6
Internal Revenue Service. What’s New – Estate and Gift Tax
7
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
8
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
9
Internal Revenue Service. Correcting Required Minimum Distribution Failures
10
eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer