Retirement Accounts After Death in Montana: IRAs, 401(k)s, and Pensions

Retirement accounts are often the largest financial asset in an estate — and they come with their own set of rules that operate completely independently of Montana probate law. For most beneficiaries, this is good news: IRAs, 401(k)s, and similar accounts pass directly to the named beneficiary outside the probate process. For beneficiaries who handle the transfer incorrectly, it can mean unnecessary taxes and permanent financial loss.

Getting this right requires understanding both the federal rules that govern retirement accounts and the Montana-specific rules that apply to employer-sponsored pensions and state retirement systems.

IRAs and 401(k)s: Beneficiary Designation Controls Everything

Like life insurance, IRAs and 401(k)s pass by beneficiary designation — not by will. Whatever the decedent's will says about retirement accounts is legally irrelevant. The named beneficiary on file with the account custodian receives the assets.

This creates one of the most common estate planning errors: a decedent who updated their will after a divorce but never updated the beneficiary designations on retirement accounts. The ex-spouse may have been removed from the will, but if they are still listed as the 401(k) beneficiary, they receive those funds regardless.

When you are inventorying the estate, contact every financial institution where the decedent held retirement accounts. Ask who the named beneficiary is. Do not assume the beneficiary is who you think it is.

Spousal Beneficiary Rights in Montana

Federal law provides special protections for surviving spouses of employees with employer-sponsored retirement plans (401(k)s, 403(b)s, and similar plans covered by ERISA). Under federal ERISA rules, a married participant cannot designate a non-spouse as the primary beneficiary on an employer plan without the spouse's written, notarized consent. If the spouse did not sign off, the spouse may have a claim to the account that overrides the written beneficiary designation.

This is a federal protection, not a Montana-specific rule, but it applies to every Montana resident with an employer-sponsored plan. If you discover that a deceased spouse named someone other than you as the beneficiary on a 401(k), consult an attorney before assuming the designation is valid.

Montana State Retirement Systems: MPERA and TRS

Montana has two primary public employee retirement systems with their own rules for death benefits:

Montana Public Employee Retirement Administration (MPERA) covers most state and local government employees. Teachers' Retirement System (TRS) covers K-12 teachers and some university employees.

The death benefits available from these systems depend entirely on the retirement option the member selected:

Option 1 (Lump Sum Remainder): If the member was already retired and selected Option 1, the designated beneficiary receives a lump-sum payment of the remaining account balance — essentially, the contributions and interest that were credited to the account minus the total benefits already paid out. If the member dies before retirement, the beneficiary typically receives a refund of accumulated contributions plus interest.

Joint and Survivor Annuity: If the member selected a joint and survivor option, a designated joint annuitant — usually the spouse — receives monthly retirement payments for the rest of their life after the member dies. MPERA and TRS also pay a one-time $500 death benefit to the beneficiary.

Families should contact MPERA or TRS directly as soon as possible after a death. These systems have their own notification and claim processes that operate separately from probate. Do not assume the state systems will automatically learn of a member's death — notification is the family's responsibility.

The Federal 10-Year Rule for Inherited IRAs

The most significant change in federal retirement account law in recent years is the SECURE Act's 10-year rule, which governs how most non-spouse beneficiaries must distribute inherited IRAs and 401(k)s.

Under current federal rules, most non-spouse beneficiaries (adult children, siblings, friends) must distribute the entire inherited retirement account within 10 years of the account owner's death. They do not have to take equal annual distributions — they can take nothing for nine years and withdraw the entire balance in year 10 — but the account must be fully distributed within the 10-year window.

Exceptions to the 10-year rule apply to:

• Surviving spouses (who have far more flexible options, including treating the account as their own)
• Minor children of the decedent (until they reach the age of majority, then the 10-year rule applies)
• Disabled or chronically ill beneficiaries
• Beneficiaries who are not more than 10 years younger than the decedent

A surviving spouse who inherits an IRA can roll it directly into their own IRA and treat it as their own retirement asset. This is the most flexible option and allows the spouse to defer distributions until their own Required Minimum Distribution (RMD) age.

No Montana State Tax on Retirement Account Distributions

Montana does not impose a state estate tax or inheritance tax. Distributions from an inherited retirement account are taxable as ordinary income for federal purposes — the beneficiary pays income tax as they withdraw funds, just as the original owner would have.

Montana does tax retirement income at the individual level, but Montana provides specific tax relief for retirement account distributions for residents who qualify. The Montana Department of Revenue provides information on applicable exclusions.

Pension Benefits: Defined Benefit Plans

Many Montana residents worked for employers with traditional defined benefit pension plans, including the federal government, railroad workers, and large private employers. These pensions operate differently from IRAs:

• The pension was paying a monthly benefit to the retiree
• At the retiree's death, whether any benefit continues depends on the survivor benefit option the retiree selected at the time of retirement
• If a survivor benefit was elected: The designated survivor (typically the spouse) continues to receive a reduced monthly payment for their lifetime
• If no survivor benefit was elected: Payments stop at the retiree's death

Some pensions guarantee a certain number of guaranteed payments regardless of when the retiree dies. If the retiree died before exhausting those payments, remaining amounts may be payable to a beneficiary.

Contact the pension administrator directly with a death certificate to confirm what, if any, benefits continue. Federal pensions (Civil Service, military) have their own notification processes through the Office of Personnel Management (OPM) or the Defense Finance and Accounting Service (DFAS).

Practical Sequence for Retirement Account Beneficiaries

1. Locate all retirement accounts by reviewing mail, email, and account statements
2. Contact each custodian to confirm the named beneficiary and request claim forms
3. Submit completed claim paperwork with a certified death certificate
4. If you are a surviving spouse, decide whether to roll the account into your own IRA or process it as an inherited IRA
5. If you are a non-spouse beneficiary, understand the 10-year distribution requirement and plan accordingly
6. Consult a financial advisor or CPA regarding the tax implications of different distribution strategies

The Montana Estate Settlement Guide covers how retirement accounts and other non-probate assets fit into the overall estate settlement picture alongside the formal probate process — so you can coordinate the two tracks without missing deadlines on either.

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