What Happens to Retirement Plans When the Member Dies?

Retirement Beneficiaries

Retirement plans are meant to cover you financially after retirement. IRA or Individual Retirement Account that you open with a financial institution on your own and 401(k) plan which is offered by employers and often match the employee’s contribution are the most common types of retirement plans. Most people focus on finding ways on how they can have enough money to live a comfortable life upon retirement. However, they often miss out on an important thing, which is who will get their funds in case of death before retirement. It’s vital to consider this in order to make sure that the right people get the money in case of the unexpected thing happening.


There is a beneficiary designation form that you need to fill up in order to name the people whom you wish to receive the funds in case of your demise. You can change the list of beneficiaries anytime. Note that whoever are on your list of beneficiaries upon your death will be the ones who will get the funds. Your beneficiaries have the following options for the funds.

Withdraw the Money

Beneficiaries may cash out on the IRA retirement funds in case of the death of the member. If they are younger than 59½, there could be a 10% withdrawal fee. Taxes would also need to be paid. It’s recommended that the beneficiaries speak to a financial advisor in order to determine the best way to cash out on the funds.

Use for Their Own IRA

If the beneficiaries have their own IRA, they may transfer the funds to their own retirement plan. In case they don’t have one yet, they may convert this and create an IRA plan for them.

Give Up the Claims

The beneficiary may also give up all the claims that was supposed to be given to him and instead give everything to the other beneficiaries.

Convert to a Roth IRA

Beneficiaries may also convert the member’s IRA to their own Roth IRA. The money saved on the account is taxed but future withdrawals would not be subjected to tax.

401 (K)


There’s also a form that you need to fill up to list your beneficiaries. The spouse also legally has the right to receive the funds even if they were legally separated and the member was living with another partner upon death. For single members, those that were designated as beneficiaries will get the funds. Like the IRA retirement plan, beneficiaries also have the option to encash the funds, transfer into an existing or create a new IRA account for them.

Social Security Benefits

The beneficiary will receive a one-time death benefit of $255 if he/she is living on the same house as the member. If there’s no spouse, the member’s children may receive the said benefit. The pension that the member should receive, would be given to the beneficiary as well. However, beneficiaries could only receive one benefit at a time. For instance, if the beneficiary is also receiving his/her pension from his/her own social security, he can only get either his/her own pension or the pension as a beneficiary, whichever is higher.

Estate Taxes

Your estate would also be given to the listed beneficiaries on your will. If the total value of your estate is lower than $5.43 million, then it will not be subjected to federal tax. However, if it’s over that amount, it’s best to talk to a real estate professional as early as now so you can plan how you can protect your assets from federal taxes, which could affect your beneficiaries in case of your death.

Death may be a topic that many people are still not comfortable discussing. However, it will eventually happen to all of us and it’s best that you’re prepared as you’ll never known when this would occur.

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