What Happens to Retirement Accounts When You Die?
A retirement account almost never passes under your will. It goes to whoever you named on the account’s beneficiary designation form, and California retirement account beneficiaries follow different rules depending on the account type.
Under California’s protection for nonprobate transfers (Probate Code section 5000), that form stays valid even though you never signed it with a will’s formalities. A surviving spouse also holds rights in the account that the form alone cannot erase.
Three things decide the outcome: who is named on the form, what kind of account it is, and whether you are married when you die. Employer plans and individual retirement accounts (IRAs) follow different rules.
Does a Retirement Account Go Through Probate in California?
A California retirement account with a valid beneficiary designation on file does not go through probate. It passes directly to the person you named on that form.
Probate is the court process for property a person owned at death. That same rule keeps a designation valid without a will’s formalities.
Pension plans and individual retirement plans appear in the statute’s own list, and a 401(k) and an IRA both sit inside it. The rest of the estate still goes through probate.
Who Inherits a 401(k) If You Are Married?
If you are married and you have an employer-sponsored 401(k), federal law sends your whole vested balance to your surviving spouse. The one way around that is a written consent your spouse signs naming someone else.
That rule, which every plan has to follow, comes from the federal spousal-benefit protection for pension plans (29 U.S.C. section 1055), part of the Employee Retirement Income Security Act (ERISA).
Vested means the share of the balance you own outright, the part you keep even if you leave the job. The same section covers a worker who dies before payments start: the plan must pay a survivor benefit to the surviving spouse.
Can You Name Someone Other Than Your Spouse as Your Beneficiary?
You can name someone other than your spouse on an employer plan. Your spouse has to sign a written consent first. That consent has to meet three federal requirements under that same federal law:
- Your spouse signs a written consent to the election.
- The consent names the beneficiary or benefit form. That choice cannot change later without another consent, unless the consent permits later changes.
- A plan representative or a notary public has to witness the consent. The consent must show that your spouse knows what the election does.
One exception exists. A plan representative may accept that no consent is possible, either because there is no spouse or because the spouse cannot be located. Plans differ in how they document it.
Does Your Spouse Already Own Half of Your Retirement Account?
In California, the part of a retirement account you earned during your marriage is community property, which means you and your spouse each own half of it. That half belongs to your surviving spouse the moment you die. Your beneficiary form can only direct the other half.
Under California’s definition of community property (Family Code section 760), what a married person earns during the marriage while living in California is community property.
Retirement contributions from work during the marriage are included, and California’s rule dividing community property at death (Probate Code section 100) then splits it: half of the community property goes to the surviving spouse, and the other half goes to the person who died. Spouses may also agree in writing to divide it on another basis.
How Long Does a Beneficiary Have to Empty an Inherited Account?
Most people who inherit a defined contribution account have to empty it within 10 years of the owner’s death, a deadline set by the federal required-minimum-distribution rule (26 U.S.C. section 401(a)(9)) for a defined contribution account, meaning one with its own balance like a 401(k).
The clock runs even if the owner had already started taking withdrawals. A beneficiary that is not a designated beneficiary, such as an estate or another entity rather than a named individual, falls outside the rule, and the statute’s general deadlines apply instead.
The rule reaches a second generation too. If an eligible designated beneficiary dies before the account empties, what is left comes out within 10 years of that death.
Who Counts as an Eligible Designated Beneficiary?
An eligible designated beneficiary is a person the owner named who fits one of a short list of protected groups: the owner’s surviving spouse, a minor child of the owner, and a short list of others the statute names, including a disabled or chronically ill beneficiary and someone not more than 10 years younger than the owner.
Only an eligible designated beneficiary can spread withdrawals over their own life expectancy instead of the 10-year deadline. A designated beneficiary is any individual the owner named. That is what separates a named person from an entity. A minor child’s stretch runs only until the child reaches the age of majority; the 10-year clock then starts.
What Can a Surviving Spouse Do With an Inherited Retirement Account?
A surviving spouse can move an inherited retirement account into an account in the spouse’s own name. No other beneficiary has that option. Federal law treats a payment made to a surviving spouse after the owner’s death as if the spouse were the employee.
Under the federal spousal-rollover rule (26 U.S.C. section 402(c)(9)), a surviving spouse also counts as an eligible designated beneficiary under that same rule. That status lifts the 10-year deadline that otherwise forces a beneficiary to empty an inherited account. The mechanics depend on the plan or the account agreement.
What Happens to Your 401(k) or IRA After a California Divorce?
After a California divorce, an IRA beneficiary designation naming your former spouse fails on its own, but the same designation on an employer-sponsored 401(k) stays in force. Federal law overrides the California rule for employer plans.
| Account | What the divorce does | Authority | What updating the beneficiary form does |
| IRA or other nonprobate transfer | Designation fails | Probate Code section 5040 | Confirms the current, intended beneficiary on record |
| Employer 401(k) or other ERISA plan | Designation stands | 29 U.S.C. section 1144(a) | Replaces the old designation, with spousal consent where required |
Under that same revocation-on-divorce rule, a designation naming a former spouse, made before or during the marriage, fails if a divorce or an annulment means that person is not your surviving spouse when you die.
A legal separation that keeps the marriage intact is not a dissolution. A failed designation is read as if the former spouse had died first.
Three situations spare the designation:
- A transfer that cannot be revoked at death.
- Clear and convincing evidence that the owner meant to keep it.
- A court order requiring it for the former spouse.
An employer plan sits on the other side of a federal line. Under that same federal preemption rule, federal law supersedes, or overrides, state laws that relate to an employee benefit plan. Courts applying this rule have held that a plan must pay the beneficiary named in its own records, even when a state divorce statute would otherwise revoke that designation, so both accounts have to be checked separately.
You can update either designation at any time, and it is worth reviewing the rest of your estate plan for the same reason after any divorce.
What Happens If You Never Named a Beneficiary?
Leaving the beneficiary form blank does not leave an employer plan without a taker. If you are married, your surviving spouse takes your whole vested balance, because that same federal rule makes that the default when no valid designation is on file.
If no beneficiary is named and no spouse survives, the plan or account agreement and state succession law decide who takes the account.
Many California families also hold a living trust, and it helps to see how wills and trusts fit alongside accounts that pass by beneficiary designation.
Talk to Frisella Neilson, APC About Your California Retirement Account Beneficiaries
Sorting out who actually inherits a retirement account can feel overwhelming on top of everything else after a loss or a life change. Checking your beneficiary designations against the rest of your estate plan is one of the most effective steps you can take to keep a retirement account from paying out to the wrong person.
Lisa J. Frisella, founding attorney at Frisella Neilson, APC, focuses her San Diego practice on estate planning, wills, and trusts, and can review your California retirement account beneficiaries alongside your will and trust. Call us at (619) 260-3500 or contact us to get started.
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