Retirement

What Happens to Your 401K When You Die

Ever wonder where the 401K in your account will go to after you die? I know it’s a gloomy topic to talk about – one’s death. But you have to be prepared in life, you have to be insured that your money is in the right place after you are long gone because for sure you aren’t carrying it with you.

So having a good 401K plan is important. Life expectancy in United States of America is good and encouraging for both men and women, but people die unexpectedly through natural occurrences or accidents. So you need to know if your money will be in the right hands after you are gone. You don’t want to let your hard earned money go down the drain. This article will let you know all about what will happen to your 401K and how it might affect the beneficiaries of said money.

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Now, a beneficiary is an individual which a retirement account will be given to upon the passing of the account holder. Beneficiaries are a sort of custodian to the account after the death of the account holder.

You can also roll over Individual Retirement Account (IRA) in the case of retirement before death. Why this is a good option is that it helps beneficiaries to avoid paying extra fees, penalties or taxes.

Firstly, you need to make a plan and when making it, you’ll need to choose at least one or several beneficiaries. In the case of more than one beneficiary, they will get required minimum distributions after you die. Here, the eldest beneficiary received the biggest payment which coincides with their age and life expectancy in United States of America.

Different people that can automatically inherit your 401K

  1. Spouse: If you are married, your Spouse can automatically inherit your 401K after your death because the US law guarantees it. The only exception being if the deceased named another person as the beneficiary or in another case of the spouse is not also alive. Divorced spouse also have rights to retain being a beneficiary even after divorce has been finalized except otherwise stated in the divorce decree.
  2. Offspring: Your child(ren) can also automatically inherit your 401K after your death with the only exception being if the deceased is childless or named another person as the beneficiary.
  3. Someone Else: We all know that deciding what will happen to your money when you die is not an blissful process but it will be good to ensure your money goes where or to whom you choose to leave your money behind with. So you can decide to name anyone as your beneficiary be it your sibling, relation, friend or any one of sort.
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  1. Charity: In the absence of the aforementioned persons , you can still name a charity your beneficiary of your choice and you can actually do some good to a cause and also know that your money has been put into good use.
  2. No Assigned Beneficiary: This is another frequent occurrence of not assigning anyone as a beneficiary. This could be as a result of untimely death where one is unprepared for who will take over the account. You should note that not assigning anyone as a beneficiary, your money may not go exactly where you want it to go before you die.

These are ways your 401K can go after you die and your beneficiaries can also choose how they receive your money and I’ll be letting you know about the few options your beneficiaries can access below.

  1. Required Minimum Distributions: Here, the beneficiaries can set a required minimum amount to be distributed among themselves.
  2. Lump-Sum Distributions: Your beneficiaries also have the option of cashing out the entire 401K account in one transaction.
  3. Rollover Distribution: Here the beneficiaries can opt to rollover a 401K into a new or existing inheritance account.
  4. Leave the Account in Your Name: Beneficiaries can also opt to leaving the account in the deceased’s name.

Well, this is all you need to know about what will happen to your 401K if you die.

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