Retirement: What Happens If a Spouse Dies?

"Retirement accounts with ill-conceived beneficiary designations could potentially cost your family tens of thousands or even hundreds of thousands of dollars if done wrong," according to Dan Stewart, president of Revere Asset Management.

Social Security benefits have an automatic survivor benefit, but beneficiary designations are crucial for retirement plans, such as IRAs. For 401(k) plans and other pension plans, federal law requires a spouse as the primary beneficiary, and choosing any other beneficiaries for those plans requires spousal waiver and consent.

Determining primary and contingent beneficiaries is an integral part of estate planning. Without named beneficiaries, retirement accounts will go to your estate and be processed through probate.

Key Takeaways

  • People should ensure certain measures are in place to guarantee that their money goes where they want it to in the event of their death.
  • IRAs, 401(k)s, and estate taxes are all handled differently if your spouse passes away.
  • Social Security survivor benefits may vary significantly depending on the beneficiaries and marital situation.

Individual Retirement Accounts (IRAs)

Individual retirement accounts (IRAs) are generally not covered in your will. So when you open an IRA, you should complete a beneficiary designation form. This form names the person or people who will receive your IRA and in what proportions. You can amend the form at any time, but whoever is on the form upon your death will receive the funds—even if they are an ex-spouse or a disinherited child.

Your IRA beneficiary has five options.

1. Keep the Inherited IRA

This is a good option if the deceased already started taking the required minimum distributions from the account. As a bequest, it allows your beneficiary to withdraw those funds too, even if they are younger than age 59½, without having to pay the usual 10% early withdrawal penalty.

If the heir is a surviving spouse, a minor child, or a disabled person, the RMDs continue to be based on the deceased person’s age rather than the beneficiary's—that is, unless the beneficiary submits a new schedule based on their age. If the heir is not a spouse, they must withdraw all the funds within 10 years of the original owner's death. These withdrawals may be subject to income taxes.

If you inherit a Roth, you have to take RMDs even though the deceased wasn't required to take them as the rules are different for beneficiaries than for participants. The one benefit here is that you won't owe tax on the money.

2. Roll Over the IRA

Another option is to take the assets and roll them into a personal IRA—either a new one or a pre-existing one—without paying income tax or early withdrawal penalties, unless you are under age 59½ when you subsequently take a distribution.

If you roll over an inherited Roth IRA, you do not pay penalties if the assets have been in the account for five years. This rollover option is only open to a surviving spouse who must transfer to the same account type—traditional IRA to a traditional IRA or Roth IRA to a Roth IRA.

"If the spouse rolls it into their personal IRA, they can update the beneficiaries and put off taking RMDs if they are less than 72 years old," says Scott A. Bishop, CPA, PFS, CFP®, partner and executive vice president of financial planning at STA Wealth Management.

3. Convert to a Roth IRA

If you anticipate being in a higher tax bracket later in life, it might be advantageous to convert a traditional IRA into a new Roth IRA account. Be aware that you will pay all applicable income taxes at this time, but down the road, you won't owe any more taxes or have to take RMDs.

4. Disclaim All or Part of the Assets

Sounds confusing, right? Basically, this means you give up any and all claims to the funds, which then go to the other beneficiaries mentioned in the designation form.

5. Take the Money

You do have the option to cash out the IRA. You will pay all applicable taxes at that time, and it may push you into a higher tax bracket. If the IRA is sizable, speak to a financial advisor about tax-efficient ways to cash out.

401(k) Plans

Things are slightly different with a 401(k). You will still complete a form that designates who receives your benefits when you pass away. If you’re married, though, the law says your spouse becomes the recipient. Even if you’ve been legally separated for years and now live with somebody else, your spouse is entitled to the account upon your death. The only way that can change is if your spouse signs a document giving up their rights as a beneficiary.

Divorce settlements generally include provisions for whether ex-spouses are entitled to any 401(k) money, in keeping with the rules of each spouse's plan.

“Always update your employer 401(k) beneficiary designation paperwork immediately after a divorce to reflect the intended beneficiary and consult an estate planning attorney to ensure your intended wishes will be carried out at your death—especially if you have remarried—to avoid future conflict. Otherwise, your ex-spouse may get something that was not agreed upon," says Michelle Buonincontri, CFP®, CDFA™, and founder of Being Mindful in Divorce.

If you’re single, the people on your beneficiary form receive the account.

The recipient’s options with a 401(k) are the same as with an IRA—keep it, roll it over somehow, cash it out (a non-spousal beneficiary must do this within a decade), or decline to receive it.

Estate Taxes

Any time the topic of assets and death arises, it's natural that estate taxes also come up. If you pass away in 2022, your beneficiaries wouldn't be affected by federal taxes if the total value of your estate is $12.06 million or less. This increases to 12.92 million in 2023 to account for inflation. The surviving spouse can file a portability exemption to pull any unused portion of this amount into their own estate to shelter it at the time of their death.

If it exceeds that amount, talk to an estate lawyer or tax attorney as soon as possible to discuss strategies for legally sheltering assets. It may involve strategies such as setting up a trust.

Social Security

Social Security will pay a one-time death benefit of $255 to your spouse as of 2022 if they have been living in the same house as you. If there is no spouse, your child or children can receive the benefit. They must apply for this payment within two years of your death. Other rules may affect their eligibility.

Your spouse or child(ren) must apply for the one-time Social Security death benefit within two years of your death.

Types of Survivor Benefits

People think of Social Security as a pension during retirement, but some of the money you pay into the system could later serve, in effect, as a life insurance policy for your heirs. The same credits that entitle you to your benefits also entitle certain people to survivor benefits—your spouse, a divorced spouse, children, or dependent parents.

Spouses can receive full survivor benefits once they reach their full retirement age—between 66 and 67—depending on their birth year. They may be able to receive some payouts earlier if certain conditions apply. 

According to the Social Security Administration (SSA), 98 out of every 100 children could get benefits if a working parent dies. Your unmarried offspring can receive benefits up to age 18 or 19 if they still attend elementary or secondary school full time. If they were disabled before the age of 22 and remained disabled, they could receive benefits at any time. Stepchildren, grandchildren, step-grandchildren, or adopted children may receive benefits under certain circumstances. 

Divorced spouses can receive benefits if the marriage lasted at least 10 years, or if they’re caring for a child who is under the age of 16 or disabled. The child must be your former spouse’s natural or legally adopted child. 

How Survivor Benefits Are Calculated

Like your own payouts, the size of survivor benefits depends on your average lifetime earnings. Naturally, the more money you made, the larger the payments to your spouse.

In general, a person can only receive one benefit at a time. Widows and widowers have the option of collecting their survivor benefits first, then switching to their own benefit at a later date if that is higher. For example, your surviving spouse could wait until age 70—the latest one can delay receiving payouts—to switch to their individual benefit if that is higher than the survivor payment.

When a surviving spouse retires, Social Security will always pay an individual's personal benefits first. If their survival benefits are higher than their personal benefits, that person gets a combination of benefits, in a sum equal to that of those larger survival benefits.

"For example, if your spouse’s benefit was $1,200 per month and you had your own benefit of $600 per month, then your total Social Security benefit going forward is $1,200," says Mark Hebner, founder and president of Index Fund Advisors and author of Index Funds: The 12-Step Recovery Program for Active Investors.

The rules for survivor benefits are very complicated. They’re so complicated that Social Security requires that you speak to a representative to receive them.

The Bottom Line

Nobody likes to think about their death. But for the sake of your loved ones, take time now to arrange your accounts and make sure the proper plans and beneficiary designations are in place. If you're married, talk to your spouse about organizing their assets, so you are mutually protected. You worked hard for the money—now make it easy for your survivors to access it.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. "IRS provides tax inflation adjustments for tax year 2023."

  2. Internal Revenue Service. "Estate Tax."

  3. Social Security Administration. "Benefits Planner: Survivors | If You Are The Survivor."

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