What Happens to a 401(k) or 403(b) When Your Spouse Dies

Surviving spouses have more options here than any other beneficiary — and a few traps that don't exist with IRAs. This is not tax or investment advice; your specifics matter significantly.

Your four options

Option 1: Roll to your own IRA

You instruct the plan administrator to transfer the balance to a traditional IRA in your name. From that point, it is your account — same rules as if you had contributed to it yourself over 40 years.

• RMDs don't start until you reach age 73 (born 1951–1959) or age 75 (born 1960 or later).²
• You name new beneficiaries who inherit under normal beneficiary rules (not the inherited-IRA 10-year rule) if you name a spouse; adult children inherit under the 10-year rule.
• You can convert the money to a Roth IRA on your own timeline.
• You can still contribute to the IRA if you have earned income.

The one trap: The account is now fully subject to the 10% early withdrawal penalty if you withdraw before age 59½. Once you roll over, that inherited-account protection is gone. If you are under 59½ and might need the money, do not roll over yet. Use the inherited IRA path instead (see Option 2), and roll to your own IRA when you reach 59½.

Option 2: Roll to an inherited IRA (usually the right first step)

Rather than rolling to your own IRA, you roll to an IRA titled as "Jane Smith, inherited IRA, beneficiary of John Smith." You are still an Eligible Designated Beneficiary (EDB) as a surviving spouse — which means you are completely exempt from the 10-year depletion rule that applies to adult children and most other heirs.

The stretch option: You can take distributions across your remaining lifetime using IRS single-life-expectancy tables. Required minimum distributions must begin by December 31 of the year after your spouse's death — unless your spouse had not yet reached RMD age, in which case you may delay until the year they would have turned 73.

No 10% penalty, ever: The IRC §72(t)(2)(A)(ii) exception to the early withdrawal penalty applies to all distributions from inherited retirement accounts after the owner's death, regardless of your age.³ If you are 45 and need income from this account, you may withdraw without penalty. This is the biggest practical difference from rolling to your own IRA.

The SECURE 2.0 §327 election (2024+): If your spouse was older than you, you can elect to be treated as if the account were the deceased spouse's — meaning RMDs don't begin until the year the deceased would have reached 73 or 75. This can buy you additional years of tax-deferred growth. The election is irrevocable; get advice before making it.⁴

The under-59½ playbook: Keep the account as an inherited IRA until you turn 59½, withdraw what you need penalty-free, then roll to your own IRA at 59½ to reset your RMD clock to your own age 73/75. This "wait and switch" is explicitly permitted.

Option 3: Leave it in the 401(k) plan

Technically possible if the plan allows it. In practice, this is rarely the best choice for three reasons:

1. Plans are not designed for long-term inherited holding. Many plans push distributions out within a few years. You may not have a choice.
2. Investment options are limited. You're stuck with whatever the plan offers — usually a narrow menu of mutual funds. An IRA gives you access to a much broader universe.
3. Plan rules vary. The plan document controls; some plans impose immediate distribution requirements that a rollover would avoid.

If you want to buy time (for example, a large account where you need to think through the tax implications), staying in the plan briefly can work. But in most cases, rolling to an inherited IRA first is better — it preserves all your options without committing you to anything.

Option 4: Lump sum

The entire balance becomes ordinary income in the year you receive it. For a $600,000 account, that could mean $150,000+ in additional federal taxes compared to spreading withdrawals over years. Unless the account is small or you have an immediate financial need that outweighs the tax cost, this option almost never makes sense.

Roth 401(k) and Roth 403(b): a different story

If your spouse had a Roth 401(k) or Roth 403(b), roll it to your own Roth IRA — not a traditional IRA. The benefits compound:

• Roth IRA has no lifetime RMDs (SECURE Act 2.0 eliminated Roth 401(k) lifetime RMDs starting 2024, but to keep the account growing with no distributions ever required, roll to a Roth IRA).²
• All future growth is tax-free.
• Your beneficiaries inherit tax-free money.

If you are under 59½ and roll a Roth 401(k) to your own Roth IRA, the 5-year clock may restart. An inherited Roth IRA has different 5-year rules. This is an area where one conversation with an advisor saves real money — the order of operations matters.

403(b) rules: essentially the same

403(b) plans (used by hospitals, schools, nonprofits) follow the same distribution rules as 401(k) plans for surviving spouses. You have the same four options; the ERISA default-beneficiary rule also generally applies to 403(b) plans. The main practical difference is that 403(b) plans tend to have fewer rollover-friendly custodians — your spouse's HR department will give you the distribution paperwork, but moving the money to an IRA at a major custodian (Fidelity, Vanguard, Schwab) is usually straightforward.

A note on the "rule of 55"

The rule of 55 allows you to withdraw from your own 401(k) without penalty if you leave your employer at age 55 or later. It does not apply to an inherited 401(k) or 403(b). You don't need it — the death exception to the 10% penalty (IRC §72(t)(2)(A)(ii)) already covers all distributions from an inherited account, at any age.

Timeline and action steps

Common mistakes

• Taking a check instead of doing a direct rollover. If the plan makes the check payable to you rather than to the receiving IRA custodian, the plan is required to withhold 20% for taxes. You then have 60 days to roll over the full amount — including the 20% withheld. Miss the deadline or short the rollover amount and the withheld portion is treated as a taxable distribution.
• Rolling to your own IRA when you're under 59½. You permanently give up the inherited-account penalty exception for that money. Keep it in inherited status until 59½.
• Assuming the 10-year rule applies to you. It doesn't. Surviving spouses are Eligible Designated Beneficiaries. The 10-year rule applies to your adult children when they eventually inherit from you — not to you now.
• Forgetting this account in a Roth conversion analysis. The year your spouse dies is your last year to file MFJ. If the 401(k) balance is large and your combined income is low in that final joint-filing year, a partial Roth conversion of pre-tax dollars at the lower MFJ brackets can save tens of thousands versus converting later as a single filer.
• Letting the account sit undecided for years. If the plan forces a distribution timeline and you miss it, you may owe taxes and penalties. The plan paperwork will specify deadlines; act on them.

Sources

1. IRS — Retirement Topics: Beneficiary. Surviving spouse distribution options, RMD timing, and rollover rules for inherited 401(k) accounts.
2. SECURE Act 2.0 (Consolidated Appropriations Act 2023, Division T). §107: RMD age 73 for those born 1951–1959, age 75 for those born 1960+. §325: eliminated Roth 401(k)/403(b) lifetime RMDs starting 2024.
3. IRC §72(t)(2)(A)(ii). Exception to 10% early withdrawal penalty for distributions after the death of the plan participant — applies to inherited 401(k), 403(b), and IRA accounts regardless of beneficiary age.
4. Kitces — New RMD Rules for Spousal Beneficiaries (SECURE 2.0 §327). Analysis of the surviving-spouse election to be treated as the deceased employee for RMD calculation purposes, effective January 1, 2024.
5. DOL — Survivor Benefits. ERISA §205 default beneficiary rules for 401(k) and 403(b) plans; spousal consent requirements for waiver.

Rules verified against IRS, DOL, and Kitces guidance current as of 2026. SECURE Act 2.0 §327 surviving-spouse election effective January 1, 2024. RMD age is 73 for those born 1951–1959; age 75 for those born 1960 or later.