If your 401(k) lists your nephew as the sole beneficiary and your last will and testament lists your current spouse as the beneficiary, your nephew is the legal recipient of your 401(k). It’s that simple, as explained in the article “The 401(k) Beneficiary Mistakes That Could Send $400,000 to the Wrong Person” from 24/7 Wall Street.
401(k) and other employee benefit accounts are governed by federal law, ERISA, which overrides any instructions in a will, trust, or even a divorce decree. ERISA even preempts state laws that automatically revoke a spouse’s beneficiary designation when a couple divorces.
If you named your spouse as a beneficiary during your marriage, divorced and never updated the designation, your ex-spouse receives the full 401(k) balance upon your death, regardless of the language in your divorce settlement. You may have had a divorce decree stating that the ex-spouse waives the right to retirement assets. It is still only enforceable if the waiver was executed through the proper legal instrument, a Qualified Domestic Relations Order, known as a QDRO.
This problem becomes worse when the wrong beneficiary is also the wrong kind of beneficiary. A surviving spouse inheriting a 401(k) account may roll it into their own IRA, defer distributions and manage required minimum distributions strategically. If a non-spouse inherits the account, including adult children, they must empty the account within ten years of the owner’s death. The distributions may push them into a higher tax bracket, making their inheritance an expensive tax liability.
Another overlooked beneficiary detail: naming a contingent beneficiary. If the primary beneficiary predeceases the original owner, a 401(k) will pass through probate. This means distribution will be delayed for months or even years, the funds will be exposed to creditor claims, and the amount heirs will receive will be reduced.
Passing a 401(k) through a beneficiary or a contingent beneficiary transfers the assets outside of probate. If the account allows for a third or even a fourth beneficiary, add their names.
Beneficiary designations should be reviewed after every large life event. Marriage, divorce, the death of a named beneficiary, or the birth of a child or grandchild can lead to a mismatch between the current form and the owner’s intent.
This is an easy problem to fix. However, it must be done by the account owner. Most people’s plans are accessible through a portal, and checking on beneficiaries and making any changes takes a few minutes.
Dana Ware of Hudson Legacy Law is a premiere Hudson Valley Trust Attorney. If you’re ready to start planning your family’s future, book a consultation with Hudson Legacy Law today.
Reference: 24/7 Wall Street (April 14, 2026) “The 401(k) Beneficiary Mistakes That Could Send $400,000 to the Wrong Person”