1. Money

Does an IRA or 401k Have to Be Used to Pay a Deceased Person's Bills?

Beneficiaries vs. No Beneficiaries

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If your loved one has recently died and he or she owned any retirement accounts, such an IRA or 401(k), then you'll need to understand if these accounts must be used to pay off the final bills of the decedent. The quick and easy answer depends on whether the account had a designated beneficiary or not at the time of the decedent's death.

What is a Designated Beneficiary?

An IRA or 401(k) has a designated beneficiary if the decedent completed a beneficiary designation form for the account prior to the decedent's death.

If at least one of the designated beneficiaries survives the decedent, then the retirement account will pass directly to the designated beneficiary outside of probate and away from the reach of the decedent's creditors. Thus, in this situation, the IRA or 401(k) doesn't have to be used to pay the decedent's final bills.

What Happens if There Isn't a Surviving Designated Beneficiary?

If the decedent did take the time to complete a beneficiary designation form prior to death but all of the beneficiaries named predecease the decedent, then one of two things can happen:

  1. The IRA or 401(k) account will pass into the decedent's probate estate and become available to pay the decedent's final bills, or


  2. The IRA or 401(k) will pass directly to the decedent's heirs at law and outside of probate pursuant to the terms of the IRA or 401(k) custodian's payment policies. If this happens, then the IRA or 401(k) won't have to be used to pay the decedent's final bills.

What Happens if the Decedent Failed to Complete a Beneficiary Designation Form?

If the decedent failed to complete a beneficiary designation form prior to death, then the same two things listed above can happen - either the IRA or 401(k) will pass into the decedent's probate estate and be available for paying the decedent's final bills, or the IRA or 401(k) will pass directly to the decedent's heirs at law and away from the hands of creditors.

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