Inheriting a 401(k): What Non-Spouse Beneficiaries Must Do

Spouse vs. Non-Spouse: Two Very Different Paths

Federal law gives surviving spouses significantly more flexibility than any other beneficiary. Before deciding anything, confirm your relationship to the deceased account holder — it determines which options are available to you.

Surviving spouse options

• Roll into your own IRA or Roth IRA. A surviving spouse can roll the inherited 401(k) directly into their own traditional IRA (for a traditional 401(k)) or Roth IRA (for a Roth 401(k)). The account then belongs to you entirely — your own RBD applies, your own beneficiary designation governs what happens next, and no inherited-IRA distribution rules apply. This is usually the best option for spouses who don't need the money immediately.
• Keep as an inherited 401(k). Staying in the plan preserves access to institutional investment options and penalty-free withdrawals before age 59½ if you need them.
• Roll to an inherited IRA. Provides investment flexibility while delaying your own RMD start — useful if the spouse is younger and wants to delay distributions.

Non-spouse beneficiary options

If you are a child, sibling, domestic partner, trust, or anyone else who is not a surviving spouse, your options are more limited:

• Roll to an inherited IRA (recommended for most). Gives you investment flexibility, avoids immediate taxation, and starts the 10-year distribution clock rather than compressing distributions into one taxable year.
• Keep in the plan. Allowed if the plan permits it — many plans require beneficiaries to take distributions on a plan-specified schedule, which may be faster than 10 years.
• Take a lump sum. The entire balance is taxable as ordinary income in the year you receive it. Usually the worst option from a tax standpoint.

How to Roll an Inherited 401(k) to an Inherited IRA

The mechanics require coordination between the plan administrator (your deceased's employer) and the IRA custodian where you want to hold the inherited account. Here's the process:

1. Open an inherited IRA at a brokerage or bank. Tell them it's an inherited IRA — the account must be titled correctly: "John Smith (deceased), for the benefit of Jane Smith, beneficiary." Do not commingle with your own IRA.
2. Contact the plan administrator. Ask for the direct rollover paperwork. Provide your inherited IRA account number and custodian details. Many plans have their own forms; expect 2–4 weeks for processing.
3. Request a direct trustee-to-trustee transfer. The check must be made payable to the new custodian (e.g., "Fidelity FBO Jane Smith, Beneficiary"), not to you personally.
4. Confirm the transfer is treated as a direct rollover on the plan's tax reporting. A code of "4" (death distribution) on the 1099-R is correct; code "1" or "2" indicates a taxable event you'll need to address.

Important: Some employer plans will not hold inherited accounts indefinitely. If the plan requires distribution within 12 months of the account holder's death and you miss the deadline, you lose the rollover option entirely and must take the distribution (and the tax hit). Contact the plan administrator within 30 days of death to understand your time window.

The 10-Year Rule and Your Distribution Deadline

Under the SECURE Act (IRC § 401(a)(9)(H), effective for deaths after December 31, 2019), most non-spouse beneficiaries must fully deplete an inherited 401(k) or inherited IRA by December 31 of the 10th year following the year of death.²

Example: Your father dies in March 2025. You roll his $600,000 401(k) to an inherited IRA. Your 10-year window closes December 31, 2035. The full balance — including any growth — must be distributed by then.

Within the 10-year window, you choose the distribution pattern. You could take $0 in years 1–9 and everything in year 10, take equal annual amounts, front-load, or take irregular amounts — as long as the account is fully emptied by the deadline. (Annual RMD rules may limit total deferral in some cases — see the next section.)

Who is exempt from the 10-year rule?

The same "Eligible Designated Beneficiary" (EDB) categories that apply to inherited IRAs apply to inherited 401(k)s. EDBs can stretch distributions over their lifetime rather than 10 years. EDB categories include: the surviving spouse, minor children of the decedent (until age of majority, then 10-year rule), disabled individuals (IRC § 72(m)(7)), chronically ill individuals, and any beneficiary not more than 10 years younger than the account owner. See our full guide on the 10-year rule for details.

When Annual RMDs Are Required Within the 10-Year Window

Many people believe they can simply wait until year 10 to take all distributions from an inherited 401(k). This is not always true. IRS final regulations (T.D. 10001, July 2024) clarified the annual RMD requirement:³

What is the Required Beginning Date for a 401(k)?

Under SECURE 2.0 (§ 107), the Required Beginning Date is April 1 of the calendar year following the year the account owner turns:⁴

• Age 73 — if born between January 1, 1951 and December 31, 1959
• Age 75 — if born on or after January 1, 1960

Practical example: Your mother was born in 1958 and died in 2025 at age 67. She had not yet reached her RBD (age 73 for her birth year). No annual RMDs are required — you can take nothing until the year-10 deadline.

Contrast: Your uncle was born in 1950 and died in 2025 at age 75. He was required to start RMDs at age 73 (in 2023), so he died after his RBD. You must take annual RMDs in years 1 through 9 of your 10-year window — you cannot defer everything to year 10.

Roth 401(k) Inheritance: Same Clock, No Tax

Inheriting a Roth 401(k) follows the same 10-year rule — but distributions are tax-free if they are "qualified." A distribution from an inherited Roth 401(k) is qualified when the original account was established at least 5 years before the distribution is taken (the 5-year clock starts January 1 of the year the decedent first contributed to any Roth 401(k)).

For most beneficiaries inheriting from a parent or older relative who had a Roth 401(k) for years, this condition is already satisfied. The practical effect: you must still empty the Roth 401(k) (or the inherited Roth IRA after rollover) within 10 years, but all distributions come out federal-income-tax-free.

One caution: if non-qualified earnings exist in the inherited Roth account (rare but possible if the 5-year rule isn't met), those earnings are taxable on distribution. This is unusual in practice but worth confirming with the plan administrator.

Your Plan May Be More Restrictive Than Federal Law

Federal law (the SECURE Act) sets a 10-year maximum. But individual employer 401(k) plans can require faster distributions. Plan documents govern. Some plans:

• Require full distribution within 5 years of the account holder's death
• Require distribution by the end of the calendar year following death
• Don't allow inherited accounts to remain in the plan at all and require rollover or immediate lump sum

Checking the plan's Summary Plan Description (SPD) — available from the plan administrator or HR department — is the first step. If the plan requires faster distribution than you'd prefer, a direct rollover to an inherited IRA preserves maximum flexibility under the 10-year rule.

The Lump Sum Option: Fast but Expensive

You can always take the entire 401(k) balance as a lump sum. The full amount is added to your taxable income in the year of distribution. For a $400,000 inherited 401(k) received by someone with $90,000 in other income (single filer), the combined $490,000 of taxable income in 2026 would look roughly like this:

2026 brackets per IRS Rev. Proc. 2025-32. Taxable income figures assume standard deduction of $16,100 (single) is already reflected in "other income." Illustrative only — actual tax depends on deductions, credits, and other income sources.

Spreading the same $400,000 over 10 years at $40,000/year keeps most distributions in the 22% bracket for the same filer — potentially saving $30,000–$60,000 in total tax compared to the lump sum. The right strategy depends on your specific bracket trajectory, not just this year's income.

Additionally, if you receive a direct distribution rather than a rollover, the plan administrator is required to withhold 20% for federal income tax (IRC § 3405). The withheld amount is credited against your tax liability, but if you wanted to fund an inherited IRA with the full amount, you'd need to make up the 20% out of pocket — and you can't "put it back" after the fact.

Action Steps for the First 60 Days

Inherited 401(k) situations move faster than they feel. Here's what to do right away:

1. Locate the beneficiary designation on file. Request a copy from the plan administrator. This determines who inherits — not the will, not what the decedent may have said verbally. Errors in the designation can cause assets to go to the wrong person or back to the estate.
2. Contact the plan administrator immediately. Ask: what are the plan's distribution options, what is their deadline for electing rollover vs. distribution, and what paperwork is required?
3. Open an inherited IRA at a brokerage before initiating the transfer. Fidelity, Vanguard, Schwab, and TD Ameritrade all support inherited IRA accounts. Title the account correctly as inherited/beneficiary IRA — not as your own IRA.
4. Initiate a direct rollover — never accept a check made out to you.
5. Do not commingle with your own retirement accounts. An inherited IRA must stay separate. Rolling an inherited IRA into your own IRA (for non-spouses) is a prohibited transaction that collapses the entire account into ordinary income in the year of the error.
6. Understand whether annual RMDs apply by checking whether the original account owner died before or after their Required Beginning Date.

Talk to an inherited 401(k) specialist

The rollover mechanics, annual RMD determination, and 10-year distribution strategy for an inherited 401(k) interact with your full tax picture in ways a generalist advisor won't catch. A fee-only inheritance specialist handles these situations regularly — they can coordinate with the plan administrator, model the optimal distribution schedule, and make sure the rollover is executed correctly the first time.