Retirement Account Inheritance Rights for Surviving Spouses

What Happened

A recent analysis from Moonan | Stratton law firm highlights critical differences in how surviving spouses inherit retirement accounts depending on the account type. The firm's report reveals that while U.S. retirement assets reached a record $15,000,000 in the third quarter of 2025, many Americans remain unaware of the complex inheritance rules governing these accounts.

The analysis explains that 401(k) plans and Individual Retirement Accounts (IRAs) operate under different legal frameworks, creating vastly different outcomes for surviving spouses. Employer-sponsored 401(k) plans fall under the federal Employee Retirement Income Security Act (ERISA), which provides automatic spousal protection. IRAs, however, are not governed by ERISA and rely entirely on beneficiary designation forms to determine inheritance.

According to the report, 889,000 401(k) accounts held at least $1 million as of September 30, 2025, with average balances reaching an all-time high of $144,400. Meanwhile, 559,000 Americans achieved 'IRA millionaire' status in 2025, with average IRA balances rising to nearly $138,000. The firm emphasizes that these substantial assets require careful beneficiary planning to ensure proper inheritance.

What It Means

The distinction between 401(k) and IRA inheritance rules creates significant implications for estate planning. For 401(k) accounts, ERISA's spousal protection rules typically make the surviving spouse the default beneficiary, even if they never contributed to the account themselves. This protection applies to legally married couples as recognized by state law, including same-sex marriages, but excludes domestic partnerships and civil unions.

However, this automatic protection disappears when 401(k) funds transfer to an IRA through a rollover. Once the money moves into an IRA, the ERISA spousal protections no longer apply, and the account follows whoever is named on the IRA beneficiary form. This transition affects millions of Americans, as total IRA assets now exceed 401(k) balances by roughly $7 trillion, indicating a massive shift from employer-managed to individually-managed retirement savings.

The practical consequences can be severe for unprepared families. In one case cited by the firm, a husband rolled his 401(k) into an IRA after retirement and named his children as beneficiaries. When he died, his wife argued she should inherit the account because the funds originally came from a 401(k). The court ruled against her, finding that IRAs are excluded from ERISA coverage regardless of the funds' origin. This case demonstrates how account rollovers can inadvertently disinherit a spouse if beneficiary forms are not updated properly.

State-Specific Considerations

Community property states add another layer of complexity to IRA inheritance. In these jurisdictions, retirement contributions made during marriage may be considered marital property, potentially giving a surviving spouse legal claims to part of an IRA even if someone else is listed as the beneficiary. This creates a conflict between beneficiary designations and state property law that families must navigate carefully.

Digital Asset Management

Modern retirement account management increasingly involves digital assets and online accounts that require careful documentation in estate plans. Account holders access their 401(k) and IRA information through online portals, mobile apps, and digital statements. Ensuring that beneficiary information remains current across these digital platforms becomes crucial for proper inheritance planning.

Context from SimplyTrust

SimplyTrust's estate planning platform recognizes that retirement accounts often represent the largest component of a person's estate, making proper beneficiary designation critical for family financial security. The platform's beneficiary management tools help families understand the difference between primary beneficiaries who receive percentage shares of an estate and asset-specific beneficiaries who inherit particular accounts or properties.

For blended families, retirement account inheritance becomes particularly complex. As outlined in SimplyTrust's blended family planning resources, stepchildren are not automatically included as 'children' under default inheritance rules unless legally adopted. This means that 401(k) and IRA beneficiary forms must explicitly name stepchildren if they are intended to inherit. The platform's primary beneficiary guidance helps families navigate these designations while ensuring all percentages total exactly 100 percent as required by law.

Source: Do Surviving Spouses Have Rights to a 401(k) or an IRA? | Moonan | Stratton