What happens to a 401k when your spouse passes away

I haven’t posted on here for ages but have a few questions that are causing our family an enormous amount of stress at the moment.

To cut a long story short, my in-laws are both retired and living in the UK. My father-in-law, a US citizen, passed away suddenly a month ago. My mother-in-law (a dual UK/US citizen) needs to be able to transfer my father-in-laws assets (primarily his 401k) into her name so she can manage the funds, because she relies on these funds for her retirement. The 401k is with Fidelity, and they have frozen the funds for anything upto 9 months!

We thought this would be a relatively simple task as one would assume this happens regularly (a spouse passing away and the assets getting transferred to the surviving widow/widower).

I’m hoping somebody on here can help. We have contacted Fidelity and not got anywhere. We have also contacted a US Tax person here in the UK who can’t help, aswell as a CPA in the US who also can’t help!

I’m pretty sure it’s an Estate Tax related issue and we need to fill out an Estate Tax return (amongst other forms), but could do with some guidance from somebody who has gone through this or somebody in the know.

Any help is hugely appreciated.

So sorry to hear about your MIL's loss and ongoing problems with the 401k.

Does your MIL know for sure that she is explicitly named as the sole beneficiary?  If so I don't understand Fidelity's delay unless your MIL does not have an existing IRA account with Fidelity or other US brokerage.  Not being a US resident if she does not have an account with Fidelity or other US brokerage then opening one to roll the 401k into it could be problematic.

Thanks for the reply. My MIL is the sole beneficiary. She does not have an existing IRA account with anybody because it was all under my FIL's name as it was his 401k.

My MIL is worried that she won't be able to access the money, which seems ridiculous because she is his wife (and sole beneficiary) and they used the funds for their retirement?

Thanks for the reply. My MIL is the sole beneficiary. She does not have an existing IRA account with anybody because it was all under my FIL's name as it was his 401k.

My MIL is worried that she won't be able to access the money, which seems ridiculous because she is his wife (and sole beneficiary) and they used the funds for their retirement?

That is really tough, I hope you manage to get it sorted quickly. I only asked those questions because that is one of the things we were warned about prior to moving back.  Even when we made wills here in England last year our lawyer asked specifically about our US retirement accounts because he knows from experience how difficult it can be.  We told him that we have done our best in that we each have our own US brokerage accounts as does our son and daughter. Our son moved back to England last year and wanted to cash out his small 401k but I convinced him to roll it into an IRA with the same brokerage as us and just leave it, in the hope that it will be easier to receive our IRAs when we die.

My sympathy also.

Do you mean that your MIL is the named sole beneficiary under the 401K plan, or are you referring to the will? Clarity about that in any conversation with Fidelity is essential.

This may help clarify things.  I wish you well.

https://www.fidelity.com/viewpoints/personal-finance/401k-inheritance-tips

Are you sure Fidelity understands you are the surviving spouse? That 9 months wait sounds as if they think something has to go through probate.

The 401(k) hopefully names the MIL as the beneficiary. Consequently, from a US perspective it passes outside of probate. It may need to be declared to HMRC for IHT purposes, but as they were married and if they have the same domicile this should not result in IHT.

Fidelity USA do not offer investment management to anyone in the UK. You would do best to use a UK based dually SEC & FCA regulated financial adviser to assist in managing the funds at this stage. This is quite a common occurrence. It is surprising that a US tax professional in the UK would not be familiar with similar scenarios.