• Liz Becerra, Financial GPS Data Analyst

401K Beneficiary Distribution Restrictions

Updated: Jul 13

401Ks are important because we all need to prepare for retirement but they can be a little confusing with all of the rules and restrictions. With that said, we're going to talk about 401K Beneficiary Distribution Restrictions.

When a 401K Participant passes away, their beneficiary becomes entitled to the money left behind. If the beneficiary is their spouse, they're entitled to rollover that money to their own tax-deferred IRA and avoid taxes and penalties. Now let's say you're the beneficiary of a 401K plan, but you're not the spouse...the rules for you are different. You can’t roll the funds over as you wish. These are called Distribution Restrictions.

You would have the option of either:

- leaving the 401(k) in place

- removing it as a lump sum or

- taking distributions from it over a five-year period.

Now as we mentioned in our previous posts and videos, it's very important that you check your beneficiaries on your 401K plan every few years to ensure that they're up to date.

For example, Let's say someone's separated from their spouse and passes away. If they still have their spouse as a beneficiary and this information was never updated, there's not much the survivors can do.

And that's it! Those are the 401K Beneficiary Distribution Restrictions. Make sure to follow us on Instagram @Financial_GPS. Make sure to subscribe to our YouTube Channel.

#taxes #savemoney #1040ES

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