What Happens to Retirement Accounts When Someone Dies

How Retirement Accounts Pass at Death — Not Through a Will

When someone dies, their retirement accounts do not become part of their estate in the way a house or bank account might. Instead, IRAs, 401(k)s, and similar accounts pass by beneficiary designation — a form the account holder completed when opening the account or at any point afterward.

This has two major implications. First, the account transfers directly to the named beneficiary, often within days or weeks of the death. Second, a will has no power over it. Even if a will says "I leave everything to my son," a retirement account with a different beneficiary named will go to that beneficiary — not the son.

The same is true in reverse: a divorce decree or separation agreement does not automatically remove an ex-spouse as a beneficiary. The account holder must update the form directly with the financial institution. Courts have sided with named beneficiaries even when family members presented compelling evidence the deceased intended otherwise.

Because these accounts bypass probate, they are not subject to creditor claims from the estate in most states. They also do not count toward estate thresholds for estate tax purposes in most situations — though estate taxes can still apply to very large estates.

When a Spouse Is the Beneficiary: The Spousal Rollover

A surviving spouse has more options than any other beneficiary. The most powerful is the spousal rollover: the spouse can roll the inherited account directly into their own IRA, treating it as if it were their own from the start.

Benefits of a spousal rollover

By rolling the account into their own IRA, the surviving spouse can defer required minimum distributions until they reach age 73 (under SECURE 2.0). They choose their own beneficiaries, consolidate accounts, and continue growing the balance tax-deferred. This is typically the best option for a spouse who doesn't need the money immediately.

When a spousal rollover might not be ideal

There is one scenario where keeping the account as an inherited IRA makes more sense: if the surviving spouse is under age 59½ and needs to take distributions from the account. IRA distributions before 59½ normally trigger a 10% early withdrawal penalty. But inherited IRA distributions are exempt from this penalty — regardless of the beneficiary's age.

A spouse who is 52 years old, widowed, and needs income from the account should strongly consider keeping it as an inherited IRA rather than rolling it over immediately. They can always roll it over later once they reach 59½. As part of navigating everything after a loss, our guide on what to do when a spouse dies covers this and other financial decisions in detail.

Roth IRA spousal rollover

The same rules apply to inherited Roth IRAs. A spouse who rolls a Roth IRA into their own Roth IRA gets the most flexibility — they never have to take RMDs from a Roth IRA during their lifetime, and qualified distributions remain tax-free.

Non-Spouse Beneficiaries and the 10-Year Rule for Inherited IRAs

Before the SECURE Act took effect in 2020, non-spouse beneficiaries could "stretch" distributions from an inherited IRA over their entire life expectancy — potentially decades. That option is largely gone now for most beneficiaries.

Under the current 10-year rule for inherited IRAs, most non-spouse beneficiaries must withdraw the entire account balance by December 31 of the 10th year following the year of the original owner's death. An account inherited in 2026 must be fully withdrawn by December 31, 2036.

Annual distributions within the 10-year period

The IRS clarified in 2024 that if the original account holder had already begun taking required minimum distributions before they died, the beneficiary must take annual RMDs in years 1–9 of the 10-year period, in addition to emptying the account by year 10. If the owner had not yet started RMDs, the beneficiary can take distributions in any pattern they choose within the 10-year window.

Who the 10-year rule applies to

The 10-year rule applies to most non-spouse beneficiaries who are not "eligible designated beneficiaries" (covered below). This includes adult children, siblings, friends, nieces, nephews, and trusts (with some exceptions).

Eligible Designated Beneficiaries: Who Can Still Use the Stretch

The SECURE Act created a special category: eligible designated beneficiaries (EDBs). These individuals are exempt from the 10-year rule and can still stretch distributions over their life expectancy — though the rules differ by group.

The minor child exception has an important limitation: once the child turns 21, the 10-year clock starts ticking. They must empty the inherited account within 10 years of their 21st birthday. Grandchildren are not eligible for this exception — they fall under the standard 10-year rule.

Disability and chronic illness must be documented and must meet specific IRS definitions. A beneficiary who thinks they may qualify should get a formal determination before making distribution decisions.

What Happens to a Retirement Account With No Named Beneficiary

If the account holder never named a beneficiary — or the named beneficiary died before them and there is no contingent beneficiary — the account defaults to whatever the plan documents say. Usually this means the account passes to the account holder's estate.

When a retirement account becomes part of the estate, it must go through probate. This is the worst outcome for tax purposes, because an estate does not qualify as a designated beneficiary. The distribution timeline compresses significantly:

• If the account holder died before their required beginning date for RMDs: the entire balance must be distributed within 5 years.
• If they died after their required beginning date: distributions continue over the deceased's remaining life expectancy per the IRS tables — but the estate, not an individual, receives them.

Beyond the unfavorable tax schedule, the account is now subject to probate court delays and potential creditor claims. The executor checklist includes a step to locate and review beneficiary designations on all retirement accounts — this is one of the most important items to address early in the estate settlement process.

IRA vs. 401(k): Key Differences for Inherited Accounts

The broad rules — beneficiary designations, 10-year rule, spousal rollover — apply to both IRAs and 401(k)s. But there are important practical differences.

401(k) plans are governed by the plan document

A 401(k) is an employer-sponsored plan, and each employer sets its own rules within federal limits. Some plans require beneficiaries to take a lump-sum distribution within a year. Others allow inherited 401(k) accounts to remain in the plan. Many plans give non-spouse beneficiaries limited flexibility compared to an IRA.

A non-spouse beneficiary who inherits a 401(k) can roll it into an inherited IRA — this is called a non-spouse rollover. This must be done as a direct rollover (trustee-to-trustee) to avoid the 20% mandatory withholding that applies if the check is made out to the beneficiary personally. Rolling into an inherited IRA typically gives the beneficiary far more control over timing and investment choices.

Spouses and 401(k) plans

Under federal law (ERISA), a married 401(k) participant's spouse is automatically the primary beneficiary — even if another person is named on the form. To name anyone other than a spouse, the spouse must sign a written waiver. This rule does not apply to IRAs.

IRA rules are more straightforward

IRAs are governed by IRS rules rather than individual plan documents. Beneficiaries of an IRA have the full range of options available under the tax code: spousal rollover, inherited IRA, or lump-sum distribution.

Required Minimum Distributions for Inherited Retirement Accounts

Required minimum distributions (RMDs) are the IRS-mandated annual withdrawals that account holders must take once they reach age 73. When the account passes to a beneficiary, the RMD rules change.

If the account holder had already started RMDs

The beneficiary must take at least the RMD amount in the year of death if the account holder had not yet taken it. After that, distribution rules depend on the beneficiary type: a surviving spouse follows their own schedule; non-spouse EDBs use their own life expectancy; and most other non-spouses must take annual RMDs in years 1–9 and empty the account by year 10.

If the account holder had not yet started RMDs

No RMD is required in the year of death. Non-spouse beneficiaries subject to the 10-year rule can take distributions in any amount, at any time, within 10 years — there is no annual minimum requirement in years 1–9.

Penalty for missing an RMD

Missing a required distribution triggers a penalty of 25% of the amount that should have been withdrawn (reduced to 10% if corrected within two years). SECURE 2.0 reduced this from the prior 50% penalty. The IRS provided penalty relief for inherited IRA RMDs during the transition period following the SECURE Act, but that relief has largely ended. Beneficiaries should take their required distributions on schedule.

The IRS publishes life expectancy tables in IRS Publication 590-B, which governs distributions from IRAs. This is the definitive reference for calculating RMD amounts.

Tax Implications of an Inherited Retirement Account

This is where the stakes are highest. Most people focus on claiming the account — but the tax consequences of how you withdraw it matter just as much.

Traditional IRA and 401(k): all distributions are taxable

Every dollar withdrawn from an inherited traditional IRA or 401(k) counts as ordinary income in the year you take it. The account was funded with pre-tax dollars, so withdrawals are fully taxable at your marginal rate. Taking a $200,000 balance as a lump sum in one year could push you well into the 32% or 37% bracket. Spreading distributions across 10 years at $20,000 per year might keep each year's income in the 12% or 22% range.

Roth IRA and Roth 401(k): generally tax-free

Inherited Roth accounts are almost always the better scenario. Roth contributions were made with after-tax dollars. Qualified distributions — those taken after the original account has been open for at least five years — are completely tax-free for beneficiaries. The 10-year rule still applies to most non-spouse beneficiaries of Roth accounts, but a beneficiary can let the entire balance grow for 10 years and take it all tax-free at the end.

No step-up in basis

Unlike a home or investment account, retirement accounts do not receive a step-up in cost basis at death. There is no tax benefit from the account having grown over decades — all of it is taxable as ordinary income when withdrawn (for traditional accounts). This is a key reason to plan distributions carefully rather than taking them all at once.

State income taxes

Most states follow federal rules and tax inherited IRA distributions as ordinary income. A few states — including Illinois, Mississippi, and Pennsylvania — offer partial or full exemptions for inherited retirement income. Check your state's rules before assuming all distributions will be taxed at the federal rate alone.

How to Actually Claim an Inherited Retirement Account

The process is more straightforward than many people expect, though it does require some paperwork and patience.

Step 1: Contact the financial institution

Call the bank, brokerage, or plan administrator where the account is held. Identify yourself as the beneficiary and ask for their inherited account process. Most institutions have a dedicated department for this.

Step 2: Gather the required documents

You will typically need:

• A certified copy of the death certificate (request multiple from the funeral home)
• Your government-issued photo ID
• The deceased's Social Security number and account number
• Completed beneficiary claim forms from the institution
• For 401(k) plans: a copy of the plan's summary plan description may be requested

Step 3: Choose your distribution option

Before signing anything, decide which option makes the most sense for your situation. Spouses should consider whether to roll over now or keep as inherited. Non-spouses should decide whether to roll into an inherited IRA at another institution (often advisable for better investment options) or accept the institution's default terms.

Step 4: Execute a direct rollover if needed

If you are transferring to a new institution — for example, rolling an inherited 401(k) into an inherited IRA — request a direct rollover. The check must be payable to the new institution, not to you. If a check is made payable to you personally, 20% will be withheld for taxes, and you'll have 60 days to deposit the full amount (including the withheld 20% from your own funds) to avoid it being treated as a taxable distribution.

Step 5: Set up your distribution schedule

Once the account is established in your name, set up a distribution schedule that works for your tax situation. Do not simply leave the account untouched for 10 years and take everything in year 10 — in most cases, spreading distributions is more tax-efficient.

As you work through all of this alongside other estate tasks, AfterKin's executor checklist can help you track each step of the process in one place.

Frequently Asked Questions