401k Beneficiaries vs Will Beneficiaries: Which Document Wins?

Outside of a home or property, it’s very common for a 401(k) to be someone’s largest financial asset, especially later in life. As a result, 401(k) account owners should understand how specific estate planning actions or inactions can affect their 401(k) account balance distribution when they pass away.

The importance of beneficiaries

When you set up your 401(k) account, you are asked to select one or more beneficiaries — who will receive the money in the account when you pass away. It’s important to note that when you pass away, your 401(k) account will be payable to the beneficiaries you designated, regardless of the provisions that are in your last will and testament.

The separate role of your “last will and testament” 

Your last will and testament controls where your “probate assets” go when you die. In general, the things you own individually, in your name, and without beneficiaries are probate assets. Your 401(k) is a “non-probate asset.” Beneficiaries can claim non-probate assets without court and attorney involvement. 

The importance of estate planning

Estate planning involves continually assessing what you have and what is most important to you and then developing and maintaining a set of legal documents and instructions to protect yourself and your loved ones. Understanding the distinctions between 401(k) beneficiaries and Will beneficiaries is an important component of estate planning.