Michigan 401(k) and IRA Beneficiary Rules: What Every Michigan Resident Needs to Know

The single biggest silent estate-planning mistake in Michigan: an outdated beneficiary form on a retirement account. Your 401(k) or IRA does NOT pass through your will. Whoever is named on the beneficiary form gets the money, full stop - even if your will says otherwise, even if the person is your college roommate from 2015, even if you have since married someone else. The rules are federal (mostly) and they differ between 401(k)s and IRAs in ways that surprise most Michigan residents. This guide covers exactly what your 401(k) and IRA beneficiary designations do (and don't do), the SECURE Act 10-year rule that changed inheritance in 2020, why your spouse has automatic 401(k) rights but no automatic IRA rights, and the specific Michigan audit steps that prevent accidental disinheritance.

The 30-Second Answer

Three rules every Michigan retirement account owner should know:

1. Beneficiary designations override your will. Whoever is on the beneficiary form gets the account, regardless of what your will says.
2. 401(k) plans require spousal consent under federal ERISA law to name a non-spouse as beneficiary. Your spouse has an automatic 50%+ interest unless they sign a specific consent form.
3. IRAs do NOT require spousal consent. A Michigan spouse can be completely cut out of your IRA by beneficiary designation. Michigan law does not fill this gap.

Since 2020, the SECURE Act requires most non-spouse beneficiaries to withdraw the entire account within 10 years of the owner's death (killing the old "stretch IRA" that allowed lifetime distributions). Michigan surviving spouses have the unique right to roll an inherited retirement account into their own IRA - dramatically improving tax outcomes.

The 401(k) vs IRA Split Every Michigan Resident Gets Wrong

Retirement accounts fall into two very different federal buckets, and Michigan residents often assume they work the same. They do not:

ERISA-Governed Plans (Employer Sponsored)

• 401(k) — employer-sponsored, most common private-sector
• 403(b) — employer-sponsored, for schools, hospitals, and nonprofits
• 457(b) — government or nonprofit deferred compensation
• Defined Benefit Pension — traditional employer pensions
• Employer group life insurance — often 1x-2x salary, free coverage

These are governed by federal ERISA law (29 U.S.C. § 1055). ERISA requires that the participant's spouse be either the sole beneficiary OR sign a written consent to a non-spouse beneficiary. Michigan cannot alter this by state statute.

Non-ERISA Retirement Accounts

• Traditional IRA — individually opened at a broker or bank
• Roth IRA — same but with different tax treatment
• Rollover IRA — a former 401(k) rolled to an IRA loses ERISA spousal protection
• SEP-IRA and SIMPLE IRA — self-employed retirement accounts
• Individually-owned life insurance — no ERISA coverage

These are governed by state law where the IRA is domiciled (Michigan law if you live here) plus the account custodian's contract terms. Michigan law does NOT require spousal consent to name a non-spouse IRA beneficiary. Practical implication: your spouse can be entirely cut out of your IRA and has no automatic legal remedy under Michigan law.

ERISA Spousal Consent: Your 401(k)'s Built-In Protection

Under 29 U.S.C. § 1055 and the Retirement Equity Act of 1984, most 401(k) plans (specifically those subject to the "qualified joint and survivor annuity" or "qualified pre-retirement survivor annuity" rules) automatically make the participant's spouse the primary beneficiary. The spouse remains beneficiary unless BOTH of the following are true:

1. The spouse signs a written consent to name a non-spouse beneficiary
2. The consent is witnessed by a plan representative or notary public

If you try to name your children (or anyone other than your spouse) as your 401(k) beneficiary without the spousal consent form, most plan administrators reject the designation. The plan still pays 50%+ (typically 100%) to your surviving spouse when you die.

This is why the ERISA spousal protection is the "background rule" for most Michigan working couples: unless you both explicitly opt out, the spouse inherits.

What ERISA does NOT do:

• Does NOT protect an ex-spouse — after divorce, Michigan MCL 700.2807 handles ex-spouse revocation for non-ERISA accounts, but ERISA plans require you to file a new beneficiary form. See our Michigan divorce and estate plan guide
• Does NOT cover most IRAs (though rollover IRAs from 401(k)s retain some protection under some plan-specific rules)
• Does NOT prevent you from taking distributions during your lifetime without spousal consent (only affects death benefits)

The IRA Gap: No Spousal Consent Required

IRAs are governed by IRC § 408 and state law. There is no federal spousal consent requirement for IRA beneficiary designations. And Michigan has no state-level equivalent to ERISA's spousal protection for IRAs.

Practical Michigan examples where the IRA gap causes disinheritance:

• You open an IRA in your 20s, before marriage, and name your parent as beneficiary. You never update after marrying.
• You get a divorce judgment. MCL 700.2807 revokes your ex-spouse from most IRA designations - but the residuary gap now leaves the money to whoever was named as contingent, which may not be who you want.
• You remarry after divorce. The IRA has no automatic protection for your new spouse - they only inherit if you affirmatively add them to the designation.
• You have a Rollover IRA from an old 401(k). The rollover lost the ERISA spousal protection. Your spouse only inherits if named on the IRA's designation form.

Fix: audit every IRA (Fidelity, Schwab, Vanguard, and any legacy accounts) and confirm the beneficiary is who you want today. Free. Takes 20-30 minutes online.

The SECURE Act 10-Year Rule (Killed the Stretch IRA)

Before 2020, non-spouse IRA beneficiaries could "stretch" required minimum distributions over their entire lifetime. A 30-year-old inheriting a $500,000 IRA could take small annual distributions over 50+ years, with tax-deferred growth continuing on the balance.

The SECURE Act of 2019 killed this for most beneficiaries. Effective January 1, 2020, non-spouse beneficiaries who are NOT "Eligible Designated Beneficiaries" must withdraw the entire IRA within 10 years of the owner's death. No annual RMDs required during the 10-year period (IRS interim guidance) - but the account must be zero by December 31 of the 10th year following death.

Consequence: a Michigan adult child who inherits their parent's traditional IRA at age 40 must withdraw the entire balance by age 50 - forcing a decade of taxable income concentrated during their peak earning years. The tax cost is often 30-40% higher than under the old stretch rules.

Roth IRA inheritance has the same 10-year rule but distributions are tax-free.

Eligible Designated Beneficiaries: The Five Exceptions

Under IRC § 401(a)(9)(E)(ii), five categories of beneficiaries qualify as "Eligible Designated Beneficiaries" (EDBs) and get lifetime distributions instead of the 10-year rule:

1. Surviving spouse of the account owner — the biggest advantage. Spouses can (a) roll the account into their own IRA (see below), (b) treat it as an inherited IRA with lifetime distributions, or (c) treat as inherited IRA with 10-year distribution.
2. Minor children of the account owner — until they reach the age of majority (18 in Michigan under MCL 722.1). At majority, they lose EDB status and the 10-year clock starts. This is very important for Michigan parents naming minor children as backup beneficiaries.
3. Disabled beneficiaries — as defined by IRC § 72(m)(7).
4. Chronically ill beneficiaries — as defined by IRC § 7702B(c)(2).
5. Beneficiaries less than 10 years younger than the account owner — typically a sibling, close-in-age friend, or younger spouse who is not the "surviving spouse" (e.g., if the account owner was in a second marriage).

If you have significant retirement assets and want to preserve stretch treatment for children beyond majority, consider a "conduit trust" or "accumulation trust" as beneficiary - Michigan attorneys draft these specifically to work with SECURE Act rules. This is one area where DIY estate planning has a real limit; consult an attorney for accounts over ~$500,000.

Spousal Rollover Strategy

A surviving spouse who inherits an IRA has a unique option not available to any other beneficiary: they can roll the inherited account into their OWN IRA, treating it as if it had always been theirs.

Benefits of spousal rollover:

• Delays required minimum distributions until the surviving spouse reaches age 73 (SECURE 2.0 rule)
• Continued tax-deferred growth for potentially decades
• Allows the surviving spouse to name their own new beneficiaries (children, grandchildren, etc.)
• Simpler tax treatment

When NOT to use spousal rollover:

• Surviving spouse is younger than 59½ and needs cash. Rolled-over IRA distributions before 59½ incur the 10% early withdrawal penalty. An inherited IRA (not rolled over) allows penalty-free distributions at any age.
• Deceased spouse was already taking RMDs. If the surviving spouse is younger, keeping the account as inherited IRA may allow smaller distributions calculated on the deceased spouse's life expectancy.
• Disclaimer planning. Michigan allows surviving spouses to "disclaim" some or all of an inherited IRA within 9 months of death (IRC § 2518), redirecting the disclaimed portion to the contingent beneficiary. This can be a powerful tax planning tool for high-net-worth families.

Per-Stirpes vs Per-Capita: The Tiny Choice That Changes Everything

Every beneficiary designation form asks you to pick primary beneficiaries, contingent (backup) beneficiaries, and often includes a subtle checkbox: "per stirpes" or "per capita." This choice controls what happens if a named beneficiary dies before you do.

Per stirpes (Latin: "by branch"): if a beneficiary dies before you, their share passes to their descendants. Example: you name your three children equally. Your oldest daughter dies before you, leaving two grandchildren. Under per stirpes: your two surviving children each get 1/3, and your oldest daughter's two grandchildren split her 1/3 share (1/6 each).

Per capita: if a beneficiary dies before you, their share is redistributed among the surviving named beneficiaries. Same example: your two surviving children each get 1/2, and the grandchildren get nothing.

Michigan default under MCL 700.2708: per-stirpes distribution generally applies to Michigan will beneficiaries who predecease the testator - but IRA custodians' default rules may override. Confirm each IRA's default. Most Michigan estate attorneys recommend per-stirpes for retirement accounts to ensure grandchildren are not accidentally disinherited.

Michigan-Specific Quirks

Michigan Revocation-on-Divorce (MCL 700.2807)

Michigan automatically revokes an ex-spouse from IRA designations after divorce. But this does NOT reach ERISA-governed 401(k)s - your ex remains the beneficiary on your 401(k) after divorce unless you file a new form. See our divorce and estate plan guide.

Michigan Creditor Protection

Under MCL 600.6023(1)(k), Michigan protects up to $1,000,000 in traditional and Roth IRAs from creditors during the account owner's lifetime. Inherited IRAs generally lose this protection (Clark v. Rameker, 573 U.S. 122 (2014)). For substantial IRAs, consider naming a trust as beneficiary to preserve creditor protection for heirs.

Michigan Trust as Beneficiary

Naming your Michigan revocable trust as retirement account beneficiary is possible but complex. Under SECURE Act regulations, the trust must be a "see-through trust" meeting specific IRS requirements to qualify for reasonable distribution treatment. Michigan-drafted trusts for retirement asset receipt should explicitly include "conduit" or "accumulation trust" language. See our Michigan trust amendment guide for restructuring.

Michigan Pre-Tax vs After-Tax Estate Impact

Traditional retirement accounts have "built-in" income tax owed by heirs on withdrawal. A $500,000 traditional IRA may be worth only $325,000-$375,000 after federal + Michigan income tax to beneficiaries in a middle bracket. Roth IRAs have no built-in tax. Consider this when directing which heirs receive which accounts - the tax-free Roth is more valuable per dollar than the taxable Traditional.

The Michigan Retirement Beneficiary Audit

Two hours, one weekend, prevents 70% of accidental disinheritance in Michigan estate planning:

1. List every retirement and life insurance account. Current employer 401(k), old employer 401(k)s, IRAs (traditional, Roth, rollover, SEP, SIMPLE), HSA, employer group life insurance, individual life insurance policies, annuities.
2. Log into each account portal. Fidelity, Schwab, Vanguard, employer benefits portals, insurance company portals.
3. Confirm current primary beneficiary is who you want today. Update if wrong.
4. Name at least one contingent beneficiary for each account. If your primary predeceases you and there is no contingent, the account falls into your probate estate - defeating the purpose.
5. For 401(k)s: verify spousal consent if non-spouse is primary. Get written confirmation from the plan administrator that the consent is on file.
6. For per-stirpes preference: check the option box. Most Michigan retirees want per-stirpes for grandchild protection.
7. For minor-child beneficiaries: plan for majority. Consider naming a Michigan trust with conduit language rather than the minor directly. See our guardian nomination guide.
8. For substantial accounts (over $500k): consult a Michigan estate attorney about a "see-through trust" designation.
9. Document your beneficiary list with your Michigan will and a "location document" telling your personal representative where each account is and how to claim it.
10. Set a calendar reminder to review every 2-3 years or after any major life event.

Frequently Asked Questions

Does my Michigan will control my 401(k) if I forget to name a beneficiary?

Sometimes yes. If a 401(k) has no valid beneficiary designation on file at death, the plan's default rule applies. Most Michigan 401(k) plans default to: (1) surviving spouse, (2) if none, then estate, (3) if no estate opened, then intestate heirs. Falling to the estate means the account IS controlled by your will - but also triggers probate delays and potentially higher taxes. Always name a beneficiary.

Can my Michigan divorce judgment force my ex to remain my 401(k) beneficiary?

Yes if the judgment includes a Qualified Domestic Relations Order (QDRO). A QDRO can assign all or part of your retirement to your ex-spouse and cannot be reversed by post-divorce beneficiary changes. See our divorce and estate plan guide.

What if my spouse and I disagree on 401(k) beneficiaries?

ERISA gives your spouse veto power - you cannot name a non-spouse beneficiary without their written consent. Discuss it. If your spouse refuses to sign a consent form, your options are: (1) accept spouse as beneficiary, (2) divorce (extreme), or (3) consult a Michigan estate attorney about prenuptial/postnuptial waivers under MCL 700.2205.

Does Michigan tax inherited IRAs?

Michigan taxes inherited IRA distributions as regular income for the beneficiary. Michigan has no additional inheritance or estate tax. The beneficiary reports IRA distributions on their Michigan income tax return in the year received. Roth IRA distributions from inherited accounts are typically federal-tax-free and Michigan-tax-free if the account was open at least 5 years before the original owner died.

Can I name my Michigan revocable trust as IRA beneficiary?

Yes but the trust must be a "qualified see-through trust" meeting IRS regulations to avoid negative tax consequences. Michigan estate attorneys draft these with specific "conduit" or "accumulation" language. DIY templates typically don't include this - consult an attorney for retirement-heavy estates.

What is the SECURE Act 2.0 and does it change anything for Michigan residents?

Yes. SECURE 2.0 (Dec 2022) made several updates: increased RMD start age from 72 to 73 (rising to 75 in 2033), reduced RMD penalty from 50% to 25%, allowed 529-to-Roth-IRA rollovers, expanded "eligible designated beneficiary" status in narrow cases, and permits certain surviving-spouse "as if" elections. Michigan residents follow the same federal rules.

Can I leave my 401(k) to charity?

Yes - excellent tax strategy. Charitable beneficiaries of retirement accounts pay no income tax on the distribution (charities are tax-exempt). And the charitable gift qualifies for estate tax deduction. If you have both retirement assets and non-retirement assets to leave, direct retirement assets to charity and non-retirement (higher basis) assets to family - more efficient overall.

What happens to my 401(k) if I die and my spouse survives me but we have adult children?

Under ERISA default, your surviving spouse gets 100% of the 401(k) (unless they had consented to a different arrangement). Your children get nothing directly from that 401(k). If you want the children to receive part directly, your spouse must sign a consent form and you must name the children as partial beneficiaries.

Are Michigan HSA (Health Savings Account) beneficiary rules different?

Yes. HSAs follow federal HSA rules under IRC § 223. Non-spouse beneficiaries lose HSA tax-advantaged status at death - the entire account becomes taxable to them in that year. Spouse beneficiaries can maintain the HSA. Because of this, spouses are almost always the ideal HSA beneficiary.

Can I use per-stirpes for my 401(k)?

Depends on the plan. Some plan administrators allow per-stirpes designations for contingent beneficiaries; others force per-capita. Read your plan's designation form carefully. If your plan does not offer per-stirpes, consider naming a Michigan trust that includes per-stirpes distribution rules.

How much does DIY retirement beneficiary planning cost in Michigan?

Beneficiary updates are FREE at every custodian. The Will Kit ($89 CreateMIWill) or Complete Bundle ($349) provides the surrounding estate plan that makes your beneficiary designations work with the rest of your family plan.

Michigan Estate Plan That Works With Your Retirement

The CreateMIWill Will Kit ($89) plus a proper retirement beneficiary audit is the Michigan DIY pairing that eliminates most accidental disinheritance. The Complete Bundle ($349) adds a Michigan trust template that can serve as a retirement account beneficiary using SECURE Act see-through language for larger estates.