Retirement accounts can represent a significant part of a person’s estate. When an IRA or 401(k) owner dies, however, these accounts do not always pass to heirs in the same way as property distributed through a will.
Instead, retirement accounts generally have beneficiary designations and specific federal distribution rules that determine what happens after the account owner’s death. The outcome can depend on the type of retirement account, who the beneficiary is, whether the beneficiary is a spouse, and other circumstances.
For Arizona residents, understanding how retirement accounts fit into an estate plan can help avoid conflicts between beneficiary designations and other estate-planning documents.
What Happens to an IRA or 401(k) After the Owner Dies?
When the owner of an IRA or participant in a retirement plan dies, the account generally passes according to the beneficiary designation associated with the account and the rules governing that retirement plan.
The beneficiary may then have several responsibilities and decisions to address, including how the inherited account will be handled and when distributions must be taken.
A 401(k) is also governed by the rules of the specific employer-sponsored retirement plan. The plan administrator can provide information about the beneficiary’s available distribution options.
An IRA follows the applicable inherited-IRA rules.
This means that retirement accounts should be reviewed separately from the provisions of a will or revocable trust while still being coordinated with the person’s overall estate plan.
Does an IRA or 401(k) Go Through Probate in Arizona?
A retirement account with a valid beneficiary designation will generally transfer according to that designation rather than through the ordinary probate process.
This makes beneficiary designations an important part of estate planning.
Problems can arise when:
- No beneficiary has been named.
- The named beneficiary has already died.
- The beneficiary designation is outdated.
- The estate has been named as beneficiary.
- The beneficiary designation conflicts with the person’s current estate-planning goals.
Arizona families can benefit from reviewing these designations as part of a broader estate planning strategy rather than treating retirement accounts as completely separate from their other assets.
Who Can Inherit an IRA or 401(k)?
An account owner can generally designate a beneficiary for a retirement account, subject to the rules of the applicable plan.
A beneficiary may include:
- A spouse
- A child
- Another individual
- A trust
- In certain circumstances, an estate or other entity
The consequences can differ significantly depending on the beneficiary.
For example, surviving spouses generally have options that may not be available to other beneficiaries. Certain beneficiaries may also qualify for special treatment under federal retirement-account rules.
Because of these differences, choosing a beneficiary should be considered as part of the overall estate-planning process. Minimizing taxes should always be a goal when reviewing retirement accounts.
What Happens If Your Spouse Inherits Your IRA?
A surviving spouse generally has additional options when inheriting an IRA.
Depending on the circumstances, a surviving spouse may be able to treat the inherited IRA as their own or roll the account into their own IRA.
The appropriate approach can depend on factors such as:
- The spouse’s age
- The age of the deceased account owner
- Whether required distributions had begun
- The type of IRA
- The spouse’s financial circumstances
- The family’s overall estate plan
These decisions can have tax and estate-planning consequences, so beneficiaries should understand their options before taking action.
What Happens If a Child Inherits an IRA?
Children and other non-spouse beneficiaries can also inherit retirement accounts, but different distribution rules may apply.
For many non-spouse beneficiaries, the SECURE Act introduced a general 10-year distribution rule for accounts inherited after 2019. However, exceptions can apply to certain eligible designated beneficiaries.
An eligible designated beneficiary may include certain:
- Minor children of the account owner
- Disabled individuals
- Chronically ill individuals
- Individuals who are not more than 10 years younger than the account owner
- Surviving spouses
The applicable rules can depend on the beneficiary’s circumstances and the account owner’s circumstances at death.
What Is the 10-Year Rule for an Inherited IRA?
The 10-year rule generally requires many non-spouse beneficiaries to completely distribute an inherited retirement account by the end of the tenth year following the account owner’s death.
However, the timing of distributions during that period can depend on the specific circumstances.
For this reason, beneficiaries should not assume that every inherited IRA can simply remain untouched until the end of the tenth year.
The distribution strategy can also have income-tax consequences, particularly when large amounts are withdrawn in a single year.
Are Inherited IRA Distributions Taxable?
The tax treatment of an inherited retirement account depends on the type of account and the distribution.
For example, distributions from a traditional IRA can generally be taxable to the beneficiary.
Roth IRAs can receive different tax treatment, although inherited Roth IRAs are still subject to applicable distribution rules.
The beneficiary may therefore need to consider both the legal requirements and potential tax consequences before deciding how to receive inherited retirement funds.
This is one reason retirement accounts should be considered alongside the rest of an estate plan. An experienced estate planning attorney should be able to guide you correctly, specially if they have a financial background.
Does a Will Control Your IRA or 401(k)?
A will does not necessarily determine who receives an IRA or 401(k).
Retirement accounts generally have beneficiary designations that operate separately from the provisions of a will.
For example, a person could update their will after a divorce but forget to update the beneficiary designation on a retirement account.
That could result in the retirement account passing according to an outdated designation.
This is why reviewing beneficiary designations after major life events is an important part of maintaining an estate plan.
What If There Is No Beneficiary?
If an IRA or retirement plan does not have a valid beneficiary designation, different rules may apply.
The result can depend on the account type, the plan documents and the circumstances surrounding the account owner’s death.
Naming a beneficiary can therefore be an important part of planning how retirement assets should pass after death.
However, simply naming someone is not always enough. The designation should also be consistent with the person’s broader estate-planning objectives.
Can You Name a Trust as the Beneficiary of an IRA?
In some circumstances, a trust can be named as the beneficiary of a retirement account.
However, using a trust as a retirement-account beneficiary requires careful planning because the trust structure and applicable retirement-account rules can affect how the account is distributed.
Retirement accounts also should not simply be treated like ordinary assets that can be transferred into any type of trust.
Citadel Law Firm’s existing discussion of the advantages of an irrevocable trust in Arizona explains how certain assets are treated differently when establishing an irrevocable trust, including the special considerations that apply to retirement accounts.
The appropriate strategy depends on the person’s goals, beneficiaries and overall estate plan.
What Should You Review When You Have an IRA or 401(k)?
If you have a retirement account, consider reviewing these areas as part of your estate plan.
1. Review Your Primary Beneficiary
Check who is currently listed as the primary beneficiary.
Do not assume that the designation is still correct simply because you remember completing the form years ago.
2. Review Your Contingent Beneficiary
A contingent beneficiary can become important if the primary beneficiary dies before the account owner. Sometimes a trust should be named as a contingent beneficiary. That is specially true for families that don’t have children or wish to disinherit their children.
3. Review Beneficiaries After Major Life Events
Consider reviewing retirement-account beneficiaries after:
- Marriage
- Divorce
- Remarriage
- Birth or adoption of a child
- Death of a beneficiary
- Major changes in financial circumstances
4. Compare Beneficiary Designations With Your Estate Plan
Your retirement-account beneficiary designations should be reviewed alongside your will, trusts and other estate-planning documents.
A plan can become inconsistent when one document is updated while another is left unchanged.
Work with your estate planning or trust attorney to consider using retirement accounts to benefit health children, in case you have special needs children.
5. Consider Special Beneficiary Circumstances
Additional planning may be necessary when the intended beneficiary is:
- A minor
- Disabled
- Chronically ill
- A spouse
- A trust
- A charity
Each situation can involve different legal and tax considerations.
How Do Retirement Accounts Fit Into an Arizona Estate Plan?
An IRA or 401(k) should generally be considered alongside the person’s other assets.
An estate plan may include:
- A Last Will and Testament
- A Revocable Living Trust
- Financial Power of Attorney
- Healthcare documents
- Real estate
- Business interests
- Life insurance
- Retirement accounts
- Beneficiary designations
Citadel Law’s trust services provide another part of the estate-planning framework that may need to be coordinated with retirement assets and beneficiary designations.
The goal is not simply to create individual documents. The different parts of the estate plan should work together to reflect the person’s goals.
When Should You Review Your Retirement Account Beneficiaries?
There is no need to wait until retirement to review beneficiary designations.
A review can be particularly important after a major family or financial change.
You may also want to review your designations when updating your will or trust so that the different parts of your estate plan remain consistent.
A beneficiary designation that made sense several years ago may no longer reflect your current wishes.
Frequently Asked Questions
Does an IRA go through probate in Arizona?
An IRA with a valid beneficiary designation will generally transfer according to that designation rather than through the ordinary probate process. The specific circumstances of the account and beneficiary can affect the result. If no beneficiary is listed in the account and the estate has more than USD $200,000 in personal property the IRA may end up in Probate.
Does a 401(k) go through probate in Arizona?
A 401(k) generally follows the beneficiary designation and rules of the applicable retirement plan. The plan administrator can explain the options available to the beneficiary. Probate will be necessary if no beneficiary is listed.
What happens if there is no beneficiary on an IRA?
Different distribution rules can apply when there is no valid designated beneficiary. The outcome can depend on the account and the circumstances of the account owner’s death. It is very likely that the account will end up in probate if the estate has more than USD $200,000 in personal property or USD $300,000 in real estate.
Can my children inherit my 401(k)?
Yes. Children can generally be named as beneficiaries, but the distribution rules depend on the child’s circumstances and the applicable retirement-plan rules.
Should I update my IRA beneficiary after a divorce?
A divorce or remarriage is an important reason to review beneficiary designations. Whether a former spouse remains the beneficiary can depend on the account, plan documents and applicable law. If the IRA was part of the divorce proceedings make sure to follow the rules on your divorce degree.
Can a trust be the beneficiary of an IRA?
A trust can be named as a beneficiary in some circumstances, but doing so requires careful consideration of the trust terms, retirement-account rules and the family’s estate-planning goals. An experienced estate planning attorney with financial background should be able to guide you correctly.
Plan Your Retirement Accounts as Part of Your Estate Plan
An IRA or 401(k) can represent a significant part of the assets you leave behind. The beneficiary designation can determine who receives the account, while federal rules can determine how and when the beneficiary must take distributions.
For Arizona families, reviewing retirement accounts alongside wills, trusts and other estate-planning documents can help identify outdated beneficiary designations and potential conflicts within an estate plan.
If you need help reviewing how your retirement accounts fit into your broader estate plan, an Arizona estate-planning attorney can help you evaluate the available options and coordinate the different parts of your plan.
Schedule your free estate planning consultation today!
Attorney David Gerszewski from Citadel Law Firm will be pleased to help you achieve your estate planning goals. Call (480) 565-8020 to schedule your free consultation today, or click on the link below.
We review IRA’s, 401ks and other retirement accounts regularly as part of our estate planning services. David financial background and experience as a trust and estate attorney makes all the different when helping you plan for your future and the future of your family.
Meet Attorney David Gerszewski
Attorney David Gerszewski is specialized in Estate Planning, Trust & Probate Law and the founder of Citadel Law Firm PLLC. He is known for making legal matters easy to understand. His background in finance and tax law makes the estate planning strategies he designs for his clients just right. He was elected a Rising Star by Superlawyers.com 4 years in a row (2023-2026).
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