It may be possible to give your 401(k) account to your kids, but it doesn't happen automatically. And it doesn't pass on in the sense that they can keep the money in the account, earning tax-free interest, as long as you could have done. Instead, your child will probably have to start withdrawals within a year of your passing.
Federal law says that your spouse is automatically your 401(k) beneficiary, even if you name someone else on the beneficiary form. To pass your account to your children, you have to get your spouse's OK first. To do this, you would ask your account administrator for a form, have your spouse sign it, and then get it notarized. If you marry or remarry after you've already named your children as beneficiaries, your new spouse also has to sign a waiver renouncing her rights.
If your spouse gives her consent, you can name one, some or all of your children as beneficiaries. If you have three kids, you can give one of them half your 401(k) assets, and the other two 25 percent each, or any other division that you think fair. If you have more children later, you have to revise your form unless you leave the account "per stirpes" -- divided equally among all your surviving children.
If you die while your child is underage, the account administrator will not give her your 401(k) assets. Minors aren't considered competent to manage their own money, so a court will have to appoint a guardian, which can take several months. Alternative options are to appoint a custodian ahead of time, create a trust for your child or leave it to your spouse and trust him to manage the money well. Leaving a 401(k) to a trust has tax drawbacks, so get legal advice first.
When you fill out the beneficiary form, make sure it reflects your wishes. For example, per stirpes beneficiaries don't include stepchildren; if you want them to inherit too, you have to name them individually. Naming a contingent beneficiary ensures your wishes are still carried out if the primary beneficiary dies before you do. Consider checking your beneficiary form every year or so to confirm that your original decisions still work for you.
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