Inherited 401(k): Your Options and the Beneficiary Rules

When you inherit money in a 401(k), the plan’s own rules decide which options you have, and IRS beneficiary rules decide how fast you must take it out and how it is taxed.

This guide is for anyone named as beneficiary of a 401(k) or similar workplace retirement plan, including non-spousal beneficiaries such as children and siblings. It focuses on choices inside and out of the plan. Once money is in an inherited IRA, our inherited IRA rules guide covers the withdrawal schedule in detail.

Sources: IRS Publication 590-B (2025), Publication 590-A, Publication 575, IRS “Retirement Topics – Beneficiary,” the IRS RMD FAQs, Notice 2024-35, and Internal Revenue Code sections 401(a)(9), 402(c)(11), and 2518.

An open antique wooden keepsake box holding a few coins and a sprig of dried lavender on a dark table in soft light, suggesting an inherited 401(k).
An inherited 401(k) follows the plan’s rules and the IRS beneficiary rules.

What is an inherited 401(k)?

An inherited 401(k) is a 401(k) balance that passes to you after the account owner dies. Because it is still an employer retirement plan, the plan’s own rules apply. You can’t add new contributions. The money stays tax deferred until you take it out, and the plan administrator handles the paperwork.

Start by calling the plan administrator after the original owner’s death. The Internal Revenue Service says the plan document sets the options open to a beneficiary, and spouses may have more choices than others. The Internal Revenue Service also notes that most plans allow a lump sum at any time.

Beneficiary rules depend on who you are

The beneficiary’s relationship to the original account owner drives the withdrawal rules and the tax treatment. Pub 590-B sorts beneficiaries into groups.

Eligible designated beneficiaries are the surviving spouse, the owner’s minor child, a disabled person, a chronically ill person, and anyone not more than 10 years younger than the owner. Eligible designated beneficiaries can generally take life expectancy distributions, stretching withdrawals over a life expectancy rather than 10 years.

Other designated beneficiaries, such as most adult children, generally must empty the inherited account under the 10-year rule.

The designated beneficiary is set on September 30 of the year after the owner’s death. A beneficiary who disclaims by then is not counted. For naming beneficiaries on your own accounts, see our IRA beneficiary designation guide.

Options for a surviving spouse

A surviving spouse has the widest set of choices, as long as the plan rules allow them.

Leave it in the 401(k). Many plans let a spouse keep the money where it is after the spouse’s death, and the inherited funds continue growing tax deferred.

Roll it into your own IRA or own retirement account. A spouse can roll the 401(k) into an own IRA or one of their own employer plans. Required distributions then follow the spouse’s own age.

Move it to an inherited IRA. The spouse stays a beneficiary rather than an owner of the 401(k) or IRA.

Take a lump sum distribution. All the funds become taxable income in one year.

Two matching ceramic coffee cups beside a closed gray binder and a jar of coins on a kitchen table, suggesting a surviving spouse reviewing inherited retirement accounts.
A surviving spouse has the widest set of choices.

Why some spouses wait before rolling over

Under Pub 590-B, money a spouse takes as a beneficiary avoids the 10% early withdrawal penalty. If the spouse rolls it into an own IRA and is under 59½, later withdrawals can face that 10% early withdrawal penalty. A younger spouse who needs immediate access may keep the money as an inherited account first, then roll it into their own IRA later.

A spouse can also elect to be treated as the employee under the plan. The tax code then doesn’t make required distributions start before the year the employee would have reached the RMD age, now 73 for most people.

Options for a non-spouse beneficiary

A non-spouse beneficiary can’t roll an inherited 401(k) into an own IRA. The choices are narrower:

Leave it in the plan, if the plan allows it, and follow its payout rules.

Take a lump sum distribution of the entire balance, which is the fastest but costliest choice.

Move it by direct transfer to an inherited IRA. Under IRC 402(c)(11) and Pub 590-A, a non-spouse beneficiary can move plan money only by a direct trustee-to-trustee transfer. A check paid to you can’t be rolled over.

The inherited IRA account must be titled in the original account owner’s name for your benefit, and you can’t treat it as your own or add contributions to it. See our IRA transfer vs rollover guide for how a direct transfer works.

An old weathered wooden chest and a newer polished box on a desk joined by a line of coins, suggesting a direct transfer from an inherited 401(k) to an inherited IRA.
A non-spouse beneficiary can move the money only by direct transfer.

Why move a 401(k) to an inherited IRA?

Plan rules vary. Some plans pay a non-spouse beneficiary in a lump sum, or require faster payouts than the IRS does. Moving to an inherited IRA gives you the full time the tax rules allow, more investment choices, and control over the timing of withdrawals. Most non-spouse beneficiaries who want to spread out the tax use this route, because an inherited IRA keeps retirement funds tax deferred longer.

How long can you keep an inherited 401k?

It depends on your category and whether the original account owner had started required minimum distributions. Here is how long you can keep an inherited 401k under each rule.

If the account owner died before RMDs began

Most non-spouse beneficiaries must empty the account by December 31 of the year that contains the 10th anniversary of the owner’s death. If the original account owner died before the required beginning date, no withdrawal is required in years one through nine.

For a 401(k), the required beginning date for most employees who aren’t 5% owners is April 1 after the year they turn 73 or retire, whichever is later, so someone still working past 73 might not have started.

A row of coin stacks on a wooden table, each shorter than the last, suggesting an inherited account drawn down over ten years.
Most non-spouse beneficiaries must empty the account by the end of the 10th year.

If the account owner died after RMDs began

If death came on or after the owner’s required beginning date, annual distributions are required starting the year after death, and the balance must still be gone by the end of year 10. IRS relief notices, most recently Notice 2024-35, waived the excise tax on certain of these annual amounts missed in 2021 through 2024. Final regulations apply for 2025 and later.

An eligible designated beneficiary, such as a surviving spouse or a chronically ill beneficiary, can instead take life expectancy distributions, often based on single life expectancy. Our IRA required minimum distributions guide explains the life expectancy tables.

Missed distributions

A missed required distribution faces a 25% excise tax, cut to 10% if corrected within the correction window.

Do I have to pay taxes on a 401(k) I inherit?

Yes, on a traditional 401(k) or IRA. Distributions from pre-tax funds are ordinary income in the year you receive them, taxed at your ordinary income tax rate. There’s no tax on the transfer itself, only on withdrawals.

A large lump sum can push you into a higher tax bracket. Spreading withdrawals across several tax years can lower the tax impact and the tax implications for your other income.

Reading glasses on an open blank notebook beside a fountain pen, a short stack of coins, and a cup of coffee on a walnut desk, suggesting tax planning for inherited money.
Spreading withdrawals across years can keep each year’s tax bill smaller.

No early withdrawal penalty for beneficiaries

The 10% early withdrawal penalty doesn’t apply to distributions to a beneficiary after the owner dies, at any age. The exception is a spouse who rolls the money into their own retirement accounts first.

Inherited Roth 401(k)

A Roth 401(k) holds after-tax dollars. Distributions are tax free if the account met the five-year rule, counted from the year of the original owner’s first Roth 401(k) contribution to the plan. Before that, earnings may be taxable.

A Roth 401(k) has no RMDs for the owner, but beneficiaries are subject to the beneficiary rules. You can move an inherited Roth 401(k) by direct transfer to an inherited Roth IRA, where qualified withdrawals stay tax free. A surviving spouse can also roll it into their own Roth IRA. Our Roth 401(k) guide covers designated Roth accounts.

Ways to avoid taxes piling up on an inherited account

You can’t avoid taxes on pre-tax inherited assets entirely, but you can manage your tax exposure:

  • Take withdrawals in lower-income years instead of all at once.
  • Use the full 10 years if the 10-year rule applies and you don’t need the inherited funds.
  • Have income tax withheld so you aren’t surprised by a tax bill.

A qualified tax professional, tax advisor, financial advisor, or financial planner can map withdrawals to your tax position and financial situation and flag tax considerations and tax consequences you might miss.

How do I cash a 401(k) that I inherit?

Ask the plan administrator for a death claim or beneficiary distribution form. You’ll usually need a certified death certificate and proof of identity.

Lump sum distribution or installments

Then choose a lump sum payment, installments if the plan offers them, or a direct transfer to an inherited IRA. If the plan pays out the whole inherited balance, the 401(k) closes.

The plan sends Form 1099-R. Withheld federal income tax is a credit on your return, so you still owe any extra tax liability. Report the distribution on your Form 1040.

Disclaiming an inherited 401(k)

You can refuse the money. Under IRC 2518, a qualified disclaimer must be in writing and delivered within nine months after the owner’s death or after you turn 21, whichever is later. You can’t have accepted any of the money first. The assets then pass to the next beneficiary as if you had died first.

What is the best thing to do with an inherited 401(k)?

It depends on your age, tax bracket, and goals, and a financial advisor can help compare your 401(k) options. A surviving spouse often weighs the own IRA against an inherited IRA. A non-spouse beneficiary often moves money to an inherited IRA to control timing. Before you inherit money and act, compare the plan rules with the IRS rules, and check how a 401(k) or IRA payout fits your financial situation and other retirement accounts.

If the plan also held company stock, read about net unrealized appreciation first, since a beneficiary may qualify for NUA treatment. Other employer 401(k)-style plans work similarly; see our 403(b) to IRA rollover and TSP to IRA rollover guides, and our 401(k) to IRA rollover guide for your own plan.

The bottom line

An inherited 401(k) gives a surviving spouse the most options, including rolling it into an own IRA. Most non-spouse beneficiaries move the money by direct transfer to an inherited IRA and follow the 10-year rule. Check the plan rules early, avoid a rushed lump sum, and get tax advice before you act.

Written by Tim Schmidt and reviewed for tax and account accuracy by Sean Webster, CPA. Last reviewed November 10, 2026 (America/New_York). This guide is for general education, not tax, legal, or investment advice, and not a recommendation to move any inherited account. IRAInvesting.com is not a custodian, broker-dealer, plan administrator, tax preparer, attorney, or investment adviser. Talk with a licensed tax professional or estate attorney before you act, and confirm current rules on IRS.gov. Investing involves risk, including possible loss of principal.