Name Your Two Kids on a 401(k), and Federal Law Can Hand It to Your Spouse Anyway. Name the Same Two Kids on an IRA, and They Get Every Dollar
Federal law can hand your 401(k) to someone you never intended, even when your beneficiary form looks perfectly correct. One family learned this after a $3 million account went entirely to the wrong person despite years of accurate paperwork.
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Most married Americans save for retirement in two accounts: a workplace 401(k) and an individual retirement account (IRA). Each has a beneficiary form, but federal law handles them differently. A married 401(k) participant who names children can still have the entire balance go to the spouse. An IRA owner who names the same children generally sees the form respected.
This affects millions of households. The Investment Company Institute reports that nearly 60 million U.S. households, or 42%, owned IRAs in 2025. Among those with traditional IRAs, 61% hold money rolled over from employer plans. Each rollover moves money from an account where the spouse has a federal claim into one where the owner’s form decides.
How One Family Lost a $3.0 Million 401(k) Despite a Valid Form
A federal appeals court ruling, LeBoeuf v. Entergy, shows the 401(k) rule. Alvin Martinez was in Entergy’s (NYSE:ETR | ETR Price Prediction) 401 (k) plan for decades. His first wife died in 2002, so in 2010, he named his four children as beneficiaries.
He remarried in 2014 and left his money in the plan without filing a new form. His quarterly statements listed the children as beneficiaries. When he died in 2021, the account held $3.0 million. His second wife had never signed away her rights. The plan paid her the full balance. The children sued, and the Fifth Circuit ruled the plan had acted properly.
Martinez filled out the form correctly and still lost. The Employee Retirement Income Security Act (ERISA), which covers most private-sector workplace plans, requires a married participant’s 401(k) to go to the surviving spouse unless the spouse agrees in writing to a different beneficiary. Under his plan’s terms, his later marriage automatically canceled the earlier designation.
Why a Spouse Can Override a 401(k) Beneficiary Form
Spousal consent has specific requirements. The waiver must be in writing and generally witnessed by a notary or plan representative. After a divorce, remarriage, or oversight, a participant can have a form that looks correct on every statement while federal law directs the money elsewhere.
The difference came up on Suze Orman’s podcast in August 2026: “If you have money in an IRA and you are not happy with your spouse, you do not have to leave him or her any money. That is not true with a 401(k). Your spouse has to sign off if you leave it to someone else.”
IRA Owners Get the Form They Signed
IRAs fall outside ERISA’s spousal rules, so the beneficiary form decides who inherits. An owner who splits an IRA between two children does not need the spouse’s signature for the custodian to pay them. The form also overrides the owner’s will. Clark Howard made this point in an April 2026 episode: “Whatever’s in your will is overridden by beneficiary designations that you’ve put on bank accounts, brokerage accounts, retirement accounts.”
In community property states such as California and Texas, a spouse may have a claim to the IRA share built up during the marriage, regardless of the form. Many 401(k) plans let a participant move the balance into an IRA without the spouse signing off. House and Senate Democrats introduced bills in 2023 that would require spousal consent before 401(k) withdrawals. Those bills would not change IRA rules.
What to Check Before the Form Is Ever Used
The Martinez case comes down to paperwork that nobody updated after a life change. Three checks address the risks it exposed:
- Get a signed spousal waiver for any non-spouse 401(k) beneficiary. A married participant who wants children to inherit needs the spouse’s notarized or plan-witnessed consent on file. Couples who remarry should sign a new waiver after the marriage.
- Review the beneficiary form itself, not the account statement. Martinez’s statements listed his children for years after his remarriage had canceled that designation.
- Map out the inherited-IRA payout timeline. Most adult children who inherit an IRA must empty it within a 10-year period, which can push large withdrawals into their peak-earning tax years.
The beneficiary form tells the IRS who should inherit the retirement money. For a 401(k), federal law makes that choice final only once the spouse has signed too. Couples who plan to leave money to children should check both accounts, because the same names on two forms can lead to two different results (our estate checklist, which includes beneficiary forms and account ownership, is available at no cost here: Die With a Plan).
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
