Can I Rollover My Deceased Spouse’s 401(k) Into Mine? Complete Guide for Surviving Spouses

Losing a spouse is one of life’s most challenging experiences. Amidst the emotional turmoil, you’re also faced with numerous financial decisions, including what to do with your deceased spouse’s retirement accounts. One question that many surviving spouses ask is: “Can I rollover my deceased spouse’s 401(k) into mine?”

The short answer is yes, but there are important considerations and options you need to understand. In this comprehensive guide, I’ll walk you through everything you need to know about handling your deceased spouse’s 401(k) and making the best decision for your financial future.

What Happens to a 401(k) When the Owner Dies?

When someone with a 401(k) passes away, the money in their account becomes part of their estate. However, unlike other assets, 401(k) funds typically bypass probate and go directly to the named beneficiaries on the account.

If you were listed as the primary beneficiary (which is typically the case for spouses), you’ll have several options for handling these inherited retirement funds. If no beneficiary was named, the money will go to the deceased person’s estate and be distributed according to their will or state inheritance laws.

Options for Spouse Beneficiaries: The Complete Breakdown

As a surviving spouse, you have more flexibility than other types of beneficiaries. Here are your main options:

1. Roll Over the Money Into Your Own IRA or 401(k)

This option is only available to spouse beneficiaries and is often the most advantageous choice You can

• Roll the funds into your existing retirement account (traditional IRA or 401(k))
• Open a new retirement account specifically for these funds

Benefits of this approach

• Continued tax-deferred growth
• Ability to manage all retirement funds in one place
• More control over investment choices
• Can potentially delay Required Minimum Distributions (RMDs) until you reach age 73

How to do it:

1. Contact your deceased spouse’s 401(k) plan administrator
2. Request the necessary rollover paperwork
3. Provide the account information for where you want the money transferred
4. Complete any required beneficiary designations

2. Roll Over the Money Into an Inherited IRA

Another option is to transfer the funds into what’s called an “inherited IRA” or “beneficiary IRA.”

Benefits:

• No early withdrawal penalties regardless of your age
• More flexibility with withdrawals compared to your own IRA
• Ability to delay RMDs until your spouse would have reached age 73

This option might be preferable if you’re under age 59½ and think you might need access to some of the funds before reaching that age, as withdrawals from an inherited IRA avoid the 10% early withdrawal penalty.

3. Take a Lump-Sum Distribution

You can withdraw the entire 401(k) balance at once.

Important considerations:

• The distribution will be taxed as ordinary income (unless it’s from a Roth 401(k) that meets certain requirements)
• This could push you into a higher tax bracket
• You lose the benefit of continued tax-deferred growth
• No 10% early withdrawal penalty applies, regardless of your age

4. Leave the Money in Your Spouse’s 401(k) Plan

Some employer plans allow the account to remain in the deceased person’s name.

Considerations:

• Plan rules vary widely – some may require distribution within a certain timeframe
• You’ll need to name a new beneficiary for the account
• Limited investment options compared to an IRA
• Subject to the plan’s rules and potential changes

5. Disclaim the Inheritance

You can choose to decline part or all of the inheritance, which would then pass to the contingent beneficiaries.

Why someone might choose this:

• For estate planning purposes
• If you don’t need the money but children or other family members do
• Tax planning strategies

Important Considerations When Making Your Decision

Plan Rules Matter!

Your options may be limited by the specific rules of your spouse’s 401(k) plan. Some plans don’t offer all these options and might require you to take distributions within a certain timeframe.

As one reader shared with me: “My husband’s employer is forcing me to take distributions from his 401(k) even though I’d prefer to keep it growing tax-deferred. Their plan rules don’t allow me to keep the money in the plan indefinitely.”

Tax Implications

Different options have different tax consequences:

• Rolling into your own retirement account: No immediate taxes, but future withdrawals will be taxed as ordinary income
• Lump-sum distribution: Entire amount taxed as income in the year received
• Roth 401(k): May provide tax-free withdrawals if qualified (account open for 5+ years)

Required Minimum Distributions (RMDs)

If your spouse was already taking RMDs (required at age 73), the rules about continuing these withdrawals vary depending on which option you choose:

• Your own IRA/401(k): Follow RMD rules based on your own age
• Inherited IRA: Different RMD rules apply depending on various factors
• Spouse’s 401(k): Must continue RMDs if your spouse had started them

Age Considerations

Your age impacts which option might be best:

• Under age 59½: An inherited IRA might be better as it allows penalty-free withdrawals
• Over age 73: RMDs are already required for your own accounts
• Between 59½ and 73: Rolling into your own IRA often provides the most flexibility

Special Circumstances and Rules

If the 401(k) Includes Employer Stock

If your spouse’s 401(k) includes employer stock, special tax treatment called Net Unrealized Appreciation (NUA) might be available. This could potentially save you money on taxes. Consult with a financial advisor before making any decisions about employer stock.

The SECURE Act and the 10-Year Rule

The SECURE Act changed some rules for non-spouse beneficiaries, requiring them to empty inherited retirement accounts within 10 years. As a spouse beneficiary, you’re exempt from this rule if you choose the rollover to your own account option.

Roth 401(k) Considerations

If your spouse had a Roth 401(k), the distribution rules are different:

• Qualified withdrawals are tax-free
• RMDs still apply to Roth 401(k)s for beneficiaries (unlike Roth IRAs)
• Rolling a Roth 401(k) into a Roth IRA can eliminate the need for RMDs

Step-by-Step Process: What to Do When You Inherit a 401(k)

1. Locate all relevant documents

   • 401(k) statements
   • Beneficiary designation forms
   • Contact information for the plan administrator

2. Contact the 401(k) plan administrator

   • Notify them of your spouse’s death (death certificate will be required)
   • Request information about your options as a beneficiary
   • Ask about specific plan rules and restrictions

3. Consult with financial and tax advisors

   • Discuss which option makes the most sense for your situation
   • Understand the tax implications of each choice
   • Consider your current and future financial needs

4. Make your decision and complete necessary paperwork

   • Follow the plan’s procedures for transferring assets
   • Ensure all paperwork is correctly completed to avoid delays
   • Keep copies of all documents for your records

5. Establish new beneficiary designations

   • Update beneficiaries for any new accounts you establish
   • Review beneficiaries on your existing accounts

Common Questions About Inheriting a 401(k)

Can I roll over my deceased spouse’s 401(k) into my Roth IRA?

Yes, but this would be considered a Roth conversion, meaning you’ll have to pay income taxes on the amount converted (unless the deceased spouse’s account was already a Roth 401(k)). The funds would then grow tax-free in your Roth IRA.

What if my spouse didn’t name a beneficiary?

If no beneficiary was named, the 401(k) funds typically go to the estate and will be distributed according to the will or state inheritance laws. This often results in less favorable tax treatment and fewer options for the surviving spouse.

Do I have to take required minimum distributions (RMDs) from my deceased spouse’s 401(k)?

It depends on which option you choose:

• If rolled into your own IRA: RMDs based on your age (starting at 73)
• If kept as an inherited IRA: Special RMD rules apply
• If left in the 401(k): Plan rules determine this, but generally yes if your spouse had already begun taking RMDs

Can I continue contributing to my deceased spouse’s 401(k)?

No, you cannot make additional contributions to a deceased person’s 401(k). If you roll the funds into your own retirement account, you can continue making contributions to your account (subject to normal contribution limits).

What happens if I disclaim the inheritance?

If you disclaim (refuse) the inheritance, the money will go to the contingent beneficiary named on the account. If no contingent beneficiary was named, it would go to the estate.

Making the Best Choice for Your Situation

The “best” option depends entirely on your personal circumstances:

• Need immediate access to funds? A lump sum or inherited IRA might be best
• Want to maximize tax-deferred growth? Rolling into your own IRA often works best
• Under 59½ and might need access? An inherited IRA provides penalty-free access
• Concerned about RMDs? Different options have different RMD requirements

Final Thoughts

Dealing with financial matters while grieving isn’t easy. Take your time, seek professional advice, and remember that different options work better for different situations. What worked for your friend or family member might not be the best choice for you.

I always recommend consulting with a qualified financial advisor who specializes in retirement accounts and inheritance issues. They can provide personalized guidance based on your specific situation, helping you navigate this complex decision during a difficult time.

Have you dealt with inheriting a 401(k) or have questions about your options? Feel free to share your experiences or questions in the comments below. Many people find comfort and clarity in hearing how others have handled similar situations.