What happens to 401(k) money that isn't used by the time the account holder dies?
A 401k plan will ask you to name a beneficiary who will receive the funds if you don't withdraw them all before death. Usually, a primary beneficiary and a secondary beneficiary is requested. If you don't specify a beneficiary, your estate is the beneficiary by default.  Note that the name supplied to the 401k plan is who will get the money, and you cannot change this by bequeathing the money in your will. For example, if you neglected to change the beneficiary upon divorce, it is useless to say in your will that the money in the 401k plan goes to your new wife; the 401k plan will give it to your ex-wife who still remains the beneficiary of your 401k Money in a 401k plan is what is called income with respect to a decedent (IRD)  on which income tax is levied, and it is also is part of your estate and thus liable to be subject to estate tax.  The latter is true even if the 401k plan assets are not mentioned anywhere in your will, and even if the assets got sent to your ex-wife which is not what you wanted to have happen.  There are various estate tax exceptions for spouse beneficiaries (no  estate tax due now, but will be charged when the spouse passes away). With regard to income tax, the beneficiaries of a 401k plan (similarly IRAs, 403b plans etc) generally get to take the whole amount and pay the income  tax themselves. Edit in response to littleadv's comments: Each 401k plan is different, and some plans, especially the smaller ones, may prefer to distribute the  401k assets as a lump sum rather than allow the beneficiaries to withdraw  the money over several years (and pay income tax on the amount withdrawn each year). This is because there are far too many rules and regulations to trip over when making withdrawals over several years. The lump sum distribution can be transferred into a newly established  Inherited IRA (see the Nolo article linked to in @littleadv's answer for some details and some pitfalls to avoid) and the income tax is thus deferred until withdrawals occur.  Spouse  beneficiaries are entitled to more generous rules than non-spouse  beneficiaries. If your heirs are otherwise well provided for and you are in a  philanthropic mood (or you don't want to give 'em a dime, the ungrateful... who never call, not even on Father's Day!), one way of avoiding a  lot of tax is to make the beneficiary of your 401k be one or more of your favorite charities. In fact, if your testamentary inclination is to make some charitable bequests as part of your will, it is much more advantageous to give money from a tax-deferred account to the charity (size of estate is reduced, no income  tax paid by anyone on amount given), and bequeath assets in non-retirement accounts to one's heirs (bequests are not taxable income, and heirs get a step up in basis for assets that have appreciated) rather than the other way around (heirs pay income tax as they withdraw the money from tax-deferred  account) Estate planning is a complicated business, and you really should talk to a professional about such matters and not rely on advice from an Internet forum. It goes to the beneficiaries, not necessarily the heirs. Taxation is a bit complicated and depends also on the plan requirements, the new owners' decisions, and the last status of the deceased owner. You should really talk to a tax adviser with the specific details to get a reliable answer that would address your situation. You should also ask about State inheritance taxes for the deceased and the beneficiaries' states. Here's the NOLO article on the issue. "I understand the answers addressing the question as asked. Yes, inheriting a 401(k) can be a convoluted process.  In general, it's best to transfer the account to an IRA after separation from the company to avoid the issues both of my esteemed colleagues have referenced.  Given the issue of ""allowed by not required"" the flexibility is greater once the account has been transferred to an IRA. With few exceptions, there's little reason to leave the account with the 401(k) after leaving that company.  (Note - I understand the original question as worded can mean the account holder passes while still working for the company. In that case, this wouldn't be an option.)"
Generally speaking the bank accounts and credit card accounts remain open.  Banks and the credit card companies don't monitor public records on a daily basis.  Instead, whoever is handling your estate will need to obtain copies of your death certificate and they will then search your paper records to identify all accounts (reason to get your act together - there are books on the subject).  The executor will work with the banks and card companies to make sure all your charges and payments clear (common to have them open for months or even a year) and to make close or transfer autopays.  They will make sure to notify the credit agencies to flag your accounts so no new accounts can be created.  MANY copies of the death certicates are needed. IANAL, nor am I a financial professional. However, I've just looked into this because of a relative's death, and I have minor children. I am in the US. First, a named beneficiary on many accounts means that any proceeds are kept out of the estate and do not have to go through probate. That usually means that they're available much more quickly.  Second, a beneficiary statement trumps a will. The account may pay out long before a will is even filed with the probate court.  Third, you can name a trust as the beneficiary. In this case, because you want to make sure the money goes to your children, that's likely your best option. The fact that you are planning to move abroad does not affect the decision to contribute to a 401(k). The reason for this is that after you leave your employer, you can roll all the money over from your 401(k) into a self-directed traditional IRA. That money can stay invested until retirement, and it doesn't matter where you are living before or after retirement age.  So, when deciding whether or not to use a 401(k), you need to look at the details of your employer's plan: Does your employer offer a match? If so, you should definitely take advantage of it.  Are there good investments available inside the 401(k)? Some plans offer very limited options. If you can't find anything good to invest in, you don't want to contribute anything beyond the match; instead, contribute to an IRA, where you can invest in a fund that you like.  The other reason to use a 401(k) is that the contribution limits can be higher. If you want to invest more than you are allowed to in an IRA, the 401(k) might allow that.  In your case, since there is no match, it is up to you whether you want to participate or not. An IRA will allow more flexibility in investing options. If you need to invest more than your IRA limit, the 401(k) might allow that. When you leave your employer, you should probably roll any 401(k) money into an IRA. The money that you have under your control (e.g. in bank accounts, savings accounts, taxable investments, etc) is your money and there is no tax of any kind (either in India or in US) that needs to be paid when the money is transferred to India. As Dheer's answer says, you need to transfer all these monies within 7 years as per Indian tax law. For your 401(k) account, assuming that all the money is tax-deferred (i.e. you contributed to a regular 401(k) and not a Roth 401(k)), you will have separated from service as far as US tax law is concerned. So, check if it is at all possible to roll over the money into a similar scheme in India, specifically the Employees Provident Fund. Wikipedia says The schemes covers both Indian and international workers (for countries with which bilateral agreements have been signed; 14 such social security agreements are active). and so a rollover might be possible. If not, you could withdraw small amounts each year and avoid US income tax (but not the 10% excise tax), but how long you can continue holding 401(k) assets after return to India and whether that is long enough to drain the 401(k) are things that you need to find out. Okay, I went through a similar situation when my mother died in March of this year. The estate still needs to go into probate. Especially if there was a will. And when you do this, your husband will be named as the executor. Then what he will need to do is produce both of their death certificates to the bank, have the account closed, and open an estate account with both of their names on it. Their debts & anything like this should be paid from this account as well. Then what you can do is endorse the check as the executor and deposit it into this account. After all debts are paid, the money can be disbursed to the beneficiaries (your husband). Basically, as long as they didn't have any huge debts to pay, he will see the money again. It just may be a couple of months. And you will have to pay some filing fees. An employer can decide that the employee funds are automatically vested. The new company could have had a more aggressive vesting schedule and grandfathered in all the employees of the company they acquired. This could have been part of the purchase negoaitaions.   I would be surprised if they did it for employees that left years ago, especially if they were beyond the return period. I wouldn't keep money in a plan with a former employer just in case it happens. Check the plan documents to see all the verbiage regarding vesting here is a paragraph from one: You will receive one year of vesting service for each calendar year   during which you complete 850 or more hours of service. Once you have   five years of service, your account is fully vested and any future   Company contributions made to your account will be immediately vested.   Full vesting also occurs at age 59½, total disability or death while   employed by the Company. If you leave the Company prior to 100%   vesting, any unvested portion of your Plan account will be forfeited. Something I wanted to posit: Do you have a life insurance policy, either taken out yourself or offered through your company? Many of these policies will pay out prior to the death of the covered individual, given statements by medical professionals that the person has a terminal illness or condition. The benefit, once disbursed, can be used for almost anything, including to pay down a mortgage, cover medical bills and other care expenses, etc. If you have such a policy, I urge you to look into it; that is the money that should be used for your end-of-life care and to ease the burden on your family, not your retirement savings. Your savings, if possible, should be left to continue to compound to provide your wife with a nest egg to retire with. "Let's say, I have a Life Insurance for 20 years. Whether the money will be given back to the Policy Holder along with the Accumulated Interest on it ? This depends on the type of Insurance Policy.  If you have purchased a ""Term Plan/Policy"" then these do not give back anything. However the premium is very low and is essentially covering for the risk. If you have ""Cash Value type"" of policies [Whole Life, Endowment, Universal Life, etc] then you get something back at the end. This depends on the policy document. The premiums are substantially high. It is generally advised that Cash Value type of policies are not good and the returns they generate are poor than depositing the difference in premium in alternative investments and buying a Term Plan." My observations is that this seems like hardly enough to kill   inflation. Is he right? Or are there better ways to invest? The tax deferral part of the equation isn't what dominates regarding whether your 401k beats 30 years of inflation; it is the return on investment.  If your 401k account tanks due to a prolonged market crash just as you retire, then you might have been better off stashing the money in the bank.  Remember, 401k money at now + 30 years is not a guaranteed return (though many speak as though it were).  There is also the question as to whether fees will eat up some of your return and whether the funds your 401k invests in are good ones. I'm uneasy with the autopilot nature of the typical 401k non-strategy; it's too much the standard thing to do in the U.S., it's too unconscious, and strikes me as Ponzi-like.  It has been a winning strategy for some already, sure, and maybe it will work for the next 30-100 years or more.  I just don't know.  There are also changes in policy or other unknowns that 30 years will bring, so it takes faith I don't have to lock away a large chunk of my savings in something I can't touch without hassle and penalty until then. For that reason, I have contributed very little to my 403b previously, contribute nothing now (though employer does, automatically.  I have no match.) and have built up a sizable cash savings, some of which may be used to start a business or buy a house with a small or no mortgage (thereby guaranteeing at least not paying mortgage interest).  I am open to changing my mind about all this, but am glad I've been able to at least save a chunk to give me some options that I can exercise in the next 5-10 years if I want, instead of having to wait 25 or more. "As you alluded to in your question, there is not one answer that will be true for all mutual funds.  In fact, I would argue the question is not specific to mutual funds but can be applied to almost anyone who must make an investment decision: a mutual fund manager, hedge fund manager, or an individual investor. Even though money going into a company 401(k) retirement savings plan is typically automatically allocated to different funds as we have specified, this is generally not the case for other investment accounts. For example, I also have a Roth IRA in which I have some money from each paycheck direct deposited and it's up to me to decide whether to leave that money in cash or to invest it somewhere else.  Every time you invest more money into a mutual fund, the fund manager has the same decision to make. There are two commonly used mutual fund figures that relate to your question: turnover rate, and cash reserves. Turnover rate measures the percent of a fund's portfolio that changes every year.  For example, a turnover rate of 100% indicates that a fund replaces every asset it held at the beginning of the year with something else at the end of the year – funds with turnover rates greater than 100% average a holding period for a given asset of less than one year, and funds with turnover rates less than 100% average a holding period for a given asset of more than one year. Cash reserves simply measure the amount of money funds choose to keep as cash instead of investing in other assets. Another important distinction to make is between actively managed funds and passively managed funds. Passively managed funds are often referred to as ""index funds"" and have as their goal only to match the returns of a given index or some other benchmark.  Actively managed funds on the other hand try to beat the market by exploiting so-called market inefficiencies; e.g. buying undervalued assets, selling overvalued assets, ""timing"" the market, etc. To answer your question for a specific fund, I would encourage you to look at the fund's prospectus. I take as one example of a passively managed fund the Vanguard 500 Index Fund (VFINX), a mutual fund that was created to track the S&P 500.  In its prospectus, the fund states that, ""to track its target index as closely as possible, the Fund attempts to remain fully invested in stocks"". Furthermore, the prospectus states that ""the fund's daily cash balance may be invested in one or more Vanguard CMT Funds, which are very low-cost money market funds.""  Therefore, we would expect both this fund's turnover rate and cash reserves to be extremely low. When we look at its portfolio composition, we see this is true – it is currently at a 4.8% turnover rate and holds 0.0% in short term reserves.  Therefore, we can assume this fund is regularly purchasing shares (similar to a dollar cost averaging strategy) instead of holding on to cash and purchasing shares together at a specific time. For actively managed funds, the picture will tend to look a little different.  For example, if we look at the Magellan Fund's portfolio composition, we can see it has a turnover rate of 42%, and holds around .95% in cash/short term reserves.  In this case, we can safely guess that trading activity may not be as regular as a passively managed fund, as an active manager attempts to time the market.  You may find mutual funds that have much higher cash reserves – perhaps 10% or even more. Granted, it is impossible to know the exact trading strategy of a mutual fund, and for good reason – if we knew for example, that a fund purchases shares every day at 2:30PM in order to realign with the S&P 500, then sellers of S&P components could up the prices at that time to exploit the mutual fund's trade strategy.  Large traders are constantly trying to find ways to conceal their actual trading activity in order to avoid these exact problems. Finally, I feel obligated to note that it is important to keep in mind that trade frequency is linked to transactions costs – in general, the more frequently an investment manager (whether it be you or a mutual fund manager) executes trades, the more that manager will lose in transactions costs." The point is to provide for yourself in retirement, so it makes sense that these withdrawals would be penalized. Tax deferred accounts are usually created for a specific cause. Using them outside of the scope of that cause triggers penalties. You mentioned 401(k) and IRA that have age limitations because they're geared towards retirement. In the US, here are other types, and if you intend to spend money in the related areas, they may be worth considering. Otherwise, you'll hit penalties as well. Examples: HSA - Health Savings Account allows saving pre-tax contributions and gains towards medical expenses. You must have a high deductible health plan to be eligible. Can be used as IRA once retired. 529 plans - allow saving pre-tax gains (and in some states pre-tax contributions) for education expenses for you or a beneficiary. If a beneficiary - contributions are considered a gift. There's a tax benefit in long term investing in a regular taxable brokerage accounts - long term capital gains are taxed at a preferable (lower) rate than short term or ordinary income. The difference may be significant. Long term = 1+ year holding. The condition here is holding an investment for more than a year, and there's no penalty for not satisfying it but there's a reward (lower rates) if you do. "If the person has prepared (""put your affairs in order"") then they will have a will and an executor. And this executor will have a list of the life insurance policies and will contact the companies to arrange payouts to the beneficiaries. It's not really the beneficiary's job to do that. If the person hasn't made a list of their policies, but has a will and an executor, then the executor can try things like looking at recently paid bills (you're sending $100 a month to ""Friendly Life Insurance Company""? Bet it's a life insurance policy) or paperwork that is in the person's home or their safety deposit boxes. Even if you don't have the key to those boxes, a copy of the will and the death certificate will get the box drilled out for you. If you don't know what bank they might have SD boxes at, again your paperwork will get the manager to find out for you if there is a box at that particular branch, so a day spent visiting branches can be fruitful. (Something I know from personal experience with someone whose affairs were nowhere near in order.) Generally you find out you're a beneficiary of a will because the executor tells you. I suppose it's possible that a person might name you beneficiary of their life insurance without telling you or anyone else, and without writing a will, but it's pretty unlikely. If you're worried, I suggest you encourage your parents, grandparents, and other likely namers of you to write up some paperwork and keep it somewhere family is likely to find it. (Not hidden inside a book on a bookcase or in the back of the wool cupboard.)" "Great question, and here is the answer. No. Shares in 401k plans are never registered to an individual while the money is held in the plan. That goes for stock or mutual funds. Technically your account is never ""yours"" until you request a distribution from the plan.   Most people do not understand this, and it's not the easiest of concepts to understand or be willing to grasp." Dividends from mutual funds reduce the share value the day they are distributed.   Mutual funds do this at least once a year, or more times in the year if there are a lot of gains, to pass through taxable gains to individuals who may have lower tax rates or deferred tax accounts such as you. This is meaningful for investors who hold the mutual funds in taxable accounts,  but immaterial for 401ks.  Your account balance is not affected if you don't get the distribution before roll over. 401(k) contributions are pre-tax dollars, but at the cost of locking the money up.  So you wouldn't have to pay taxes on it, but the funds wouldn't be available either.