I’ll be the first to tell you that I plan on living as close to forever as possible, but I am still in touch with reality enough to understand that I’ll end up closer to the beginning of that time frame and I need to answer some questions about my finances before I do move on. I love my family and I do NOT want to place any unnecessary burden on them when I pass away. Nobody likes to talk about things like this, but I know finding out what happens to my 401k if I die is a good way to help protect your loved ones and your finances.
As I’ve grown older, had children, gotten married, and started to plan seriously for my future this subject comes up from time to time. If I have an accident and die tomorrow, what would happen? Nothing can replace a loved one, but placing a complicated financial burden on the people you love is thankfully something that can be avoided with some due diligence.
The first question to ask is who will be getting the money.
Who is the Beneficiary?
Generally what happens is…
A 401k is an employee-based retirement system that is governed by a few special laws that determine how they will be handled in almost every situation. By default, your spouse is usually the automatic beneficiary of the retirement plan. Federal law creates this assumption by stating that the spouse of the deceased has a right to the inheritance unless they sign a written waiver excluding them to it. There are some exceptions such as time married, state laws, etc, but typically this is what would happen if you made no other decisions about who the beneficiary would be. This is an important thing to remember for any situation involving remarriage, children, and multiple beneficiaries in general. If you second wife does not have a good relationship with your children then they may find themselves disinherited.
What input do I have?
It’s more likely that when you signed up with your employer’s 401k that you filled out a lot of information which included naming specific beneficiaries to your plan. In my case I was asked to name a primary and secondary beneficiary when I signed up. I put my wife as the primary and my children as the secondary, but there are always reasons why you might not want this to happen depending on your current age, family situation, lack of children, etc. I imagine that I fall into the most typical scenario with my wife being the primary and my children being the secondaries.
So to recap, here is a summary of what would happen to your 401k if you die and: