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Guest Blog: Death and Your 403(b) ⚰️

November 30, 2021

Guest post by Dr. Barbara O’Neill, CFP®, AFC®

We’ve all heard the phrase “you can’t take it with you” with respect to accumulated wealth at the end of someone’s life. It applies to 403(b) plan accounts as well as any other assets that someone owns. That money has to go somewhere (e.g., spouse, children, siblings, and/or charitable organizations).

This post describes what happens to 403(b) assets after a plan participant dies with basic information about beneficiary designations, income tax treatment of inherited retirement accounts, and advantages of charitable gifting. It concludes with six take-away action steps.

Regular Reviews

Review beneficiary designations on 403(b) plans and other contracts with beneficiaries (e.g., life insurance policies and individual retirement accounts) periodically. Otherwise, unintended results can happen.


  • A former spouse can remain a beneficiary because beneficiary designations are typically not automatically revoked by a divorce.
  • If named beneficiaries pre-decease the 403(b) account holder and there are no contingent beneficiaries designated as “Plan B,” the deceased’s estate will generally receive the assets to disperse via the local probate process. A will or state intestacy laws (if there is no will) will determine how assets are distributed.

Use this worksheet to list all your named beneficiaries and personal representatives (e.g., executor and power of attorney agent) in one place. Review it regularly and make revisions as needed.

Tax Topics

403(b) plans are tax-deferred, which means the IRS expects federal income tax payments on contributions and earnings when money is withdrawn, typically during retirement. When 403(b) account owners die before depleting their balance, specific rules for inherited 403(b)s apply.

Under the 2019 SECURE Act, most beneficiaries must withdraw the entire balance by the end of the 10th year following the year that the account owner died. For example, December 31, 2031 for 403(b) plan assets inherited from someone who died in 2021. Withdrawals are taxed as ordinary income.

There are no required minimum distributions for any of the ten years, however; only the requirement that the balance be completely withdrawn by the end of year 10. This provides flexibility to 403(b) plan beneficiaries, who can adjust withdrawals to match their expected tax liability.


  • A 63-year old “child” of an 88-year old decedent might want to wait four years until retirement at age 67 to start taking withdrawals if income is expected to decrease at that time.

Eligible Exceptions

There are five exceptions to the 10-Year Rule: surviving spouses, minor children (until age of majority in their state; then they have until the end of the 10th year following that age), disabled individuals, chronically ill individuals, and beneficiaries who are not more than 10 years younger than the deceased account owner.

These individuals, called “eligible designated beneficiaries,” can take distributions under previous “stretch” rules based on their life expectancy.

Spousal beneficiaries can treat the decedent’s 403(b) account as their own. This includes making contributions, naming beneficiaries, and calculating required minimum distribution (RMD) withdrawals that must begin no later than age 72.

Charitable Contributions

403(b) account holders may decide to designate one or more charities as a beneficiary. One reason is concern that certain individuals might squander the money an account owner worked so hard for.

Another reason to donate 403(b) plan assets to charities is tax-efficiency. Qualified tax-exempt charities can receive funds from retirement plans without paying income and estate taxes on the distribution. If 403(b) plan assets go to individuals, taxes are due.

A commonly recommended strategy to distribute wealth to both charities and individuals tax-efficiently is to donate retirement plan assets to charities free of taxes and to use money held in taxable accounts for family gifts. The family will only pay taxes when they sell their gifted assets.

Philanthropy Pitfalls

A caution about designating charities as beneficiaries of a 403(b) plan: check with the plan administrator to make sure there aren’t any restrictions against doing so and/or if written consent from a spouse (if married) is required.  Ask for a copy of the Summary Plan Description (SPD) for the 403(b) plan. The SPD will describe allowable beneficiary designation procedures in detail.

Running afoul of plan regulations could result in a charitable beneficiary designation being disqualified.

Three (More) Tidbits

  1. Large bequests are tricky for adult children in their peak earning years. The ten-year withdrawal period can exacerbate an already high tax liability. If grandchildren are named as contingent beneficiaries, an option exists for primary beneficiaries to disclaim all or part of their bequest and have 403(b) plan assets pass to grandchildren. Seek legal assistance with disclaiming strategies.
  2. SECURE Act provisions noted above (i.e., the replacement of the previous “stretch” option with the 10-Year Rule for non-spouse beneficiaries) take effect for 403(b) and 457 plans sponsored by state and local governments and plans maintained pursuant to collective bargaining agreements on January 1, 2022.
  3. 403(b) plan beneficiary designations supersede any bequests that might be made in a will if there is a conflict between documents. Wills only come into play if there is no qualified named beneficiary. This situation should be avoided. The probate process can be time-consuming and costly and a plan participant’s assets may not be distributed as desired.

Six Smart Strategies

No 1: Review Your Beneficiaries — Review your list of beneficiaries and personal representatives at least annually and make changes through your 403(b) plan administrator, if needed, as personal feelings and life events (e.g., death, marriage, and divorce) warrant.

No. 2: Communicate and Share — Keep family members, intended beneficiaries, legal and financial advisors, and personal representatives “in the loop” with regard to your plans to distribute 403(b) plan assets. Hold face-to-face conversations and share digital or hard copies of relevant documents.

No. 3: Ask Questions — Make a list of planning questions (e.g., how can I distribute my wealth tax-efficiently?) and process questions (e.g., how can I change my 403(b) plan beneficiary?) and reach out for help. Some plan providers have salaried wealth advisors that help account owners with financial planning decisions.

No. 4: Know Your Plan — Learn your 403(b) plan’s rules regarding asset transfers resulting from 403(b) plan inheritances. While government regulations provide options, some must be explicitly allowed by employers. This includes options such as direct transfers to an inherited IRA account.

No. 5: Think Tax-Efficiency — Remember that inherited distributions from 403(b) plans are taxable at ordinary income tax rates to individuals who receive them. If an account is large, it could easily raise someone’s tax rate a bracket or two. Charities, on the other hand, pay no income tax and benefit from the full amount of a deceased person’s account balance. Heirs can receive money held in taxable accounts with a stepped-up basis.

No. 6: Step Up Your Spending — Check yourself if you have been a diligent saver and are struggling with the idea of spending down your savings because, psychologically, it feels like a “loss.” Remember, if you don’t spend your money, someone else will. If financial calculators and advisors say you have “more than enough,” practice spending more so there will be less money left behind to have to distribute.

In Summary

You can’t take your 403(b) plan with you. Make plans for this money in case some is left over at the end of your life.

This post provides general personal finance information and does not address all the variables that apply to an individual’s unique situation. It should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.


Dr. O'Neill is the owner/CEO of Money Talk: Financial Planning Seminars and Publications where she writes, speaks, and reviews content about personal finance. She is a Distinguished Professor Emeritus at Rutgers University and a long-time 403(b) plan participant.

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