Takeaways

• Whether a surviving spouse automatically inherits a retirement account depends on its legal structure. Employer plans like 401(k)s generally default to the spouse due to federal law. IRAs do not have this automatic protection; the account goes to the specific beneficiary named on the form, who may or may not be the spouse.

• To name someone other than a spouse as the beneficiary of a 401(k), the spouse must usually provide written, notarized consent. This rule does not apply to IRAs.

• Even with 401(k)s, and absolutely with IRAs, the specific beneficiary form on file with the financial institution or plan administrator controls who gets the money. If you want your spouse to inherit an IRA or a 401(k) that you rolled into an IRA, you must name your spouse as the beneficiary. You must also update these forms if you divorce or roll funds from a 401(k) into a new IRA.

Retirement planning in the United States has, like many aspects of our economy, moved away from employer-provided guarantees such as traditional pensions and shifted more responsibility — and more risk — to employees. But millions of American workers now have seven-figure balances in 401(k)s and IRAs, and the number of retirement millionaires continues to grow.

In many households, spouses informally share those retirement savings to cover everyday expenses. Legally, however, ownership of a retirement account is a different matter entirely.

The rules regarding inheriting retirement accounts are complex. When choosing a beneficiary for a retirement plan, understanding these rules — and how they differ for 401(k)s and IRAs — is crucial.

401(k)s and IRAs Are Governed by Different Legal Rules

Although both 401(k)s and IRAs are designed to help Americans save for retirement, they are governed by different legal frameworks. Employer-sponsored retirement plans such as 401(k)s fall under the federal Employee Retirement Income Security Act (ERISA), while IRAs generally do not.

That distinction is important when it comes to the rights of surviving spouses as retirement account beneficiaries.

Surviving Spouses Usually Inherit a 401(k) by Default, But Exceptions Can Apply

For 401(k)s and other ERISA-governed defined-contribution plans, a surviving spouse is usually the default beneficiary under ERISA's spousal protection rules. In most cases, the account passes directly to the spouse unless a valid exception applies, even though the surviving spouse never directly contributed to the 401(k).

Federal law treats a couple as spouses if state law recognizes their marriage. This includes same-sex marriages, but not registered domestic partnerships, civil unions, or other types of formal relationships that some states recognize but do not classify as marriages.

Some plans may also impose a limited marriage-duration requirement. For example, certain pension plans that pay survivor annuities may require the participant and spouse to be married for at least one year before the spouse qualifies for the benefit. This rule appears in federal pension regulations and is intended to prevent last-minute marriages meant solely to secure survivor benefits.

However, this rule generally applies only to pension-style annuity benefits, such as a Qualified Joint and Survivor Annuity (QJSA), and rarely affects typical 401(k) account distributions.

Outside that limited situation, the main exceptions to automatic spousal inheritance fall into a few categories:

• Spousal waiver. A spouse can voluntarily give up his or her right to the retirement account. If the participant wants to name someone other than the spouse as beneficiary, the spouse must usually sign a written consent form, notarized or witnessed by the plan administrator (the company that runs the retirement plan). Once that waiver is signed, the participant can name another beneficiary.
• Divorce order. A court order issued during a divorce — called a Qualified Domestic Relations Order (QDRO) — can assign part or all of a retirement account to a former spouse or another alternate payee. The plan administrator must follow a valid QDRO when distributing the account.  It is also possible in most states to obtain a QDRO without initiating a divorce proceeding.  This is called an "in marriage QDRO".
• Plan procedures. Some employer plans include technical requirements for how and when beneficiaries are named. If these procedures are not followed (e.g., a waiver is not properly notarized), the designation of a nonspouse beneficiary may be invalid, and the surviving spouse may still receive the account.

Finally, there are cases where the beneficiary designation is missing or outdated. If no valid beneficiary is listed, the plan's default rules determine who inherits the account. Often, the spouse automatically receives the benefit. But in some plans, the account may pass to the participant's estate.

These spousal protections apply to most employer-sponsored retirement plans governed by ERISA. Individual retirement accounts follow a different set of rules.

IRA Spousal Inheritance Rules

IRAs are not governed by ERISA, so they do not include the same spousal protections.

A surviving spouse does not automatically inherit an IRA simply because he or she was married to the account owner. The beneficiary designation listed with the financial institution typically determines who receives the account.

The owner of an IRA can name any beneficiary he or she chooses. The account may be left to a spouse, child, other relative, a trust, or a charity. And unlike a 401(k), a married IRA owner usually does not need a spouse's written consent to name someone else as the beneficiary.

But there are several situations where the outcome may be different and the beneficiary designation on file may not have control:

• Community property laws. In community property states, retirement contributions made during the marriage may be considered marital property. As a result, a surviving spouse may have a legal claim to part of an IRA even if someone else is listed as the beneficiary. This issue is governed by state property law rather than ERISA.
• Divorce orders. Retirement accounts may be divided during divorce proceedings. If a court order assigns part of the account to a former spouse, the financial institution must follow that order when distributing the account.
• Beneficiary form problems. A missing, incomplete, or outdated beneficiary form can result in the IRA provider following the account's default rules. That may mean the account passes to the owner's estate, which may require probate.
• Account rollovers. Retirement savings from a 401(k) are often rolled into an IRA after a job change or retirement. Once the funds are transferred, the ERISA spousal protections that applied to the workplace plan generally no longer apply. This distinction matters more as retirement savings increasingly move from workplace plans into IRAs.

In one legal case, a husband rolled his 401(k) into an IRA after he retired and named his children as the IRA's beneficiaries. After he died, his wife argued that she should receive the account as his surviving spouse because the funds originally came from a 401(k). The court disagreed, finding that IRAs are excluded from ERISA coverage — even when the funds originated in a 401(k).

The Bottom Line: How to Make Sure Your Spouse Receives Your Retirement Account

Getting beneficiary designations right — and protecting a spouse's inheritance rights in 401(k)s and IRAs — is often a top priority in an estate plan.

• If you have an IRA and want your spouse to be its beneficiary, you have to specifically name your spouse as a beneficiary.
• If you have a 401(k) and want your spouse to be the beneficiary, you should still fill out a beneficiary designation form, naming your spouse.
• If you roll a 401(k) over into an IRA, make sure you fill out a new beneficiary designation form.
• If you want someone other than your spouse to be the 401(k) beneficiary, you will need your spouse's consent in writing.

Whether you have a 401(k) or an IRA, it is important to regularly check your beneficiary designations to ensure they are current. 

Also see this article for information about the benefits of naming a trust as a 401k or IRA beneficiary.