Your 401k is meant to support your loved ones after you’re gone, but outdated or unclear beneficiary designations can lead to confusion, delays, or legal challenges. Understanding the rules around 401k beneficiaries helps ensure your account is passed on according to your wishes without unexpected tax issues or probate headaches. 

This guide explains the key differences between primary and contingent beneficiaries, and explains why keeping both updated is important. You’ll also learn how major life changes like marriage, divorce, or having a child may affect your plan. We’ll walk through payout timelines, required minimum distributions (RMDs), and recent changes under the SECURE and SECURE 2.0 Acts.

By the end, you’ll have a clearer picture of what to review, when to update your forms, and how to avoid common mistakes when managing 401k beneficiary designations.

📌 Also Read: Solo 401k RMD Rules & Table (2025 Update)

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Naming and Managing 401k Beneficiaries

Keeping your 401k beneficiary designations current is one of the simplest ways to protect your loved ones from delays, disputes, or unexpected taxes. Below, you’ll learn how to assign beneficiaries, complete the right forms, and know when to revisit your choices.

Primary and Contingent Beneficiaries

Your primary beneficiaries are first in line to receive your 401k assets after your death. You can name one or more people and assign a percentage to each, as long as the total adds up to 100%.

If your primary beneficiaries are no longer living or they decline the inheritance, your contingent beneficiaries become next in line. These are your backups. 

Without a named contingent beneficiary, your 401k assets may go to your estate by default. That may lead to probate, which often adds time, cost, and legal complexity.

📝 Note: Always name at least one contingent beneficiary to help avoid unnecessary delays or court involvement.

How to Fill Out and Submit Beneficiary Forms

Step 1: Gather the right information. For individuals, you’ll need their full legal name, date of birth, and Social Security number. For trusts or entities, use the tax ID.

Step 2: Complete the form. Most plan providers offer digital forms, but some still require paper versions. List your primary and contingent beneficiaries, assign percentages, and check the “per stirpes” option if you want a beneficiary’s share to pass to their children in case they pass away before you.

Step 3: Review spousal consent rules. If you’re married and plan to leave any amount to someone other than your spouse, your spouse may need to sign a consent form under ERISA rules.

Step 4: Submit the form properly. Use your plan provider’s preferred method — online upload, fax, or mail.  Always keep a copy and confirm that your plan administrator received it.

When to Update Your Beneficiaries

Your designations may be valid today, but that can change quickly. Several life events should prompt an immediate review:

✅ Marriage or divorce could override old forms, depending on state law.

✅ Birth or adoption of a child may require updating your primary or contingent list.

✅ Death of a beneficiary means their share could default to your estate if you don’t reassign it.

✅ Changes in estate plans or tax law, like the 10-year payout rule for non-spouse beneficiaries under the SECURE Act, could affect how your assets are distributed.

📝 Tip: Most financial professionals recommend reviewing your 401k beneficiaries at least once a year or whenever there’s a major life change. Keeping this information updated can help prevent disputes or delays for the people you care about.

401k Payout and Timing Rules

How and when your beneficiaries can access your 401k depends on who they are and when you passed away. Understanding the rules can help them avoid tax penalties and make informed decisions.

Payout Options for Spouse Beneficiaries

Spouses generally have the most options when inheriting a 401k:

✅ Roll into your own retirement account: A surviving spouse may move the inherited balance into their own 401k or IRA. This allows distributions to begin at age 73, the current required beginning date (RBD) under IRS rules.

✅ Use an in-plan Roth rollover: If the plan allows it, the surviving spouse could roll the funds into the plan’s Roth account. This triggers income tax on the amount converted but allows potential tax-free growth going forward.

✅ Set up an inherited IRA: This option allows the spouse to leave the funds in a separate inherited account. Distributions then follow beneficiary rules. This setup can help preserve certain protections and avoid plan-level restrictions.

✅ Take a lump-sum distribution: This fully withdraws the funds but results in immediate ordinary income taxes on the pretax portion. It also ends any future tax deferral.

Rules for Non-Spouse Beneficiaries

Non-spouse beneficiaries — such as adult children, siblings, or friends — generally have fewer options. Most must follow rules set by the SECURE Act (2019) and SECURE 2.0 updates.

✅ 10-Year Rule: In most cases, the entire account must be emptied by December 31 of the 10th year after the original account holder’s death. No annual RMDs are required within those 10 years, unless the original owner had already started taking RMDs.

✅ 5-Year Rule for older deaths: If the account owner passed away before their required beginning date — and before 2020 — the beneficiary may have had the option to stretch distributions or withdraw the full balance within five years.

✅ Eligible designated beneficiaries (EDBs): Some individuals can still stretch withdrawals over their life expectancy. These include:

  • Surviving spouses
  • Minor children of the account holder
  • Individuals with a disability or chronic illness
  • Anyone less than 10 years younger than the account holder

This group is not required to follow the 10-year rule.

When RMDs Must Begin

Timing depends on when the original account holder passed away:

  • If death occurred after RBD: The beneficiary must begin required minimum distributions by December 31 of the year after the participant’s death, then continue annually.
  • If death occurred before RBD: No annual RMDs are required. Instead, the account must be fully withdrawn by the applicable 5- or 10-year deadline, depending on the rules in effect.

📝 Note: Eligible designated beneficiaries using the life expectancy method must calculate annual RMDs using the IRS’s beneficiary distribution tables.

Taxes, Penalties, and Key Law Changes

Let’s break down how taxation works and what has changed under recent laws like the SECURE Act and SECURE 2.0.

How Pretax and Roth 401k Inheritances Are Taxed

  • Pretax 401k: Any withdrawals from an inherited pretax 401k are taxed as ordinary income in the year they are taken. The full amount you withdraw is added to your taxable income. These distributions do not receive capital gains treatment.
  • Roth 401k: Withdrawals from an inherited Roth 401k are generally tax-free. Contributions are always tax-free, but earnings may only be tax-free if the account has been open for at least five years. If the account is younger than five years, earnings could be subject to income tax.

25% Penalty for Missing RMDs

If you fail to take a required minimum distribution (RMD) on time from an inherited 401k, you may face a 25% penalty on the amount not withdrawn. This drops to 10% if the shortfall is corrected within two years. You must report the penalty using IRS Form 5329.

📌 Also Read: Does a Roth IRA Have Required Minimum Distributions (RMD)?

What Changed Under the SECURE Acts

Recent laws made important changes to how inherited retirement accounts are handled:

  • 10-Year Rule: Most non-spouse beneficiaries must withdraw the entire account within 10 years of the original account holder’s death. No annual RMDs are required in years one through nine.
  • Eligible Designated Beneficiaries: Spouses, minor children, individuals with disabilities or chronic illnesses, and beneficiaries less than 10 years younger than the account holder may use life expectancy payouts instead of the 10-year rule.
  • Reduced Penalties: The penalty for missing RMDs was reduced under SECURE 2.0, from 50% to 25%, and further to 10% if corrected promptly.

Why You Should Review Your Beneficiary Forms Each Year

Even if your situation hasn’t changed, your plan provider’s rules or federal regulations might have. An annual check can help you:

  • Spot outdated names or incorrect details
  • Confirm that all percentages still total 100%
  • Make sure any required spousal consent is still valid
  • Adjust for recent law changes or tax rules

Final Thoughts on 401k Beneficiary Rules

Keeping your 401k beneficiary information updated helps avoid delays, tax issues, and legal complications for your heirs. Small actions, like naming a backup beneficiary or updating your forms after major life changes, can make a big difference.

Review your plan documents regularly to confirm that names, percentages, and spousal consent are still accurate. If you have questions, reach out to your plan administrator or a qualified advisor.

📌 Want to keep learning? Check out our other retirement planning articles for more helpful information:

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