The 401k inheritance rules that apply to you depend first on whether you are the surviving spouse or a non-spouse beneficiary, and then on the employer plan’s own document, because a 401(k) is an ERISA employer plan governed by its plan terms, not the more flexible individual-account rules that govern an IRA. A surviving spouse generally has the widest set of choices. Most non-spouse beneficiaries of an owner who died in 2020 or later face a 10-year deadline to empty the account.
Non-spouse beneficiaries of a 401(k) owner who died in 2020 or later generally must withdraw the entire balance by December 31 of the year containing the 10th anniversary of death (Source: IRS Pub 590-B, 2025). Surviving spouses have added options, including rolling the money into their own IRA. A missed required distribution carries a 25% excise tax, cut to 10% if corrected within two years (Source: SECURE 2.0 Act of 2022, Section 302).
What determines your inherited 401k rules?
Four facts decide how the 401k inheritance rules apply to a specific account: your relationship to the deceased owner, whether the owner had reached their required beginning date, whether the account is a traditional or Roth 401(k), and what the employer’s plan document permits (Source: IRS Pub 575 and Pub 590-B, 2025). These factors interact, so two beneficiaries of similar-sized accounts can face different deadlines and different tax outcomes.
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The plan document is the factor most guides skip, and it is worth checking first. Because a 401(k) is an employer-sponsored plan under ERISA, its written terms can restrict options the tax code would otherwise allow. Some plans require a non-spouse beneficiary to take a full lump-sum distribution rather than permitting a transfer to an inherited IRA. The summary plan description and the plan administrator are the sources that confirm which options a specific plan allows (Source: IRS Pub 575, 2025). This is where an inherited 401(k) diverges most from an inherited IRA. If you actually hold an IRA rather than an employer plan, the individual-account mechanics differ, and our companion guide to inherited IRA rules and tax strategies covers those.
The required beginning date (RBD) is the second factor. The current RMD age is 73, and for an employer plan the RBD is generally April 1 following the later of the year the owner turns 73 or the year the owner retires (Source: IRS Retirement Topics, RMDs, 2025). Whether the owner died before or after that date changes whether annual withdrawals are mandatory during the payout window, as explained below.
The remaining two factors, relationship and account type, set the deadline and the tax character. Reading all four in combination, rather than one at a time, is how the correct deadline and tax treatment for a specific account come into focus.
What are a surviving spouse’s options?
A surviving spouse who inherits a 401(k) generally may treat the account as their own, roll it into their own IRA or an eligible employer plan, or remain a beneficiary of the inherited account (Source: IRS Pub 590-B and Pub 575, 2025). Rolling into their own IRA removes the 10-year deadline and lets the spouse use their own RMD schedule, though it can reintroduce the pre-59.5 early-withdrawal question.
Treating the account as their own or rolling it into their own IRA means the surviving spouse steps into the shoes of the original owner. There is no 10-year drawdown deadline in that case, and the spouse begins their own required minimum distributions based on their own age (Source: IRS Pub 590-B, 2025).
One trade-off follows from that choice. Money the spouse rolls into their own account is treated as their own retirement money, so a withdrawal before the spouse reaches age 59.5 could trigger the 10% early-distribution tax. A spouse who expects to need the funds before 59.5 may instead remain a beneficiary, because distributions to a beneficiary after the owner’s death are exempt from the 10% penalty regardless of the beneficiary’s age (Source: IRS Topic 558, 2025). These are factors to weigh rather than a single correct path.
ERISA also affects who becomes the beneficiary in the first place. In many private employer 401(k) plans the surviving spouse is the default beneficiary, and naming someone else generally requires the spouse’s written, witnessed or notarized consent under the spousal-consent rules (Source: ERISA Section 205; IRC Section 417). This differs from IRAs, where no spousal consent is required to name a non-spouse beneficiary.
How does the 10-year rule work for non-spouse beneficiaries?
A non-spouse designated beneficiary who is not an eligible designated beneficiary generally must withdraw the entire inherited 401(k) by December 31 of the year containing the 10th anniversary of the owner’s death, for deaths in 2020 or later (Source: IRS Pub 590-B, 2025). Example: an owner who died in 2025 means the account must be fully distributed by December 31, 2035.
The 10-year rule was created by the SECURE Act of 2019 for deaths after December 31, 2019, and it replaced the older “stretch” approach that had let many beneficiaries spread withdrawals across their own life expectancy (Source: Federal Register, 89 FR, July 19, 2024). Treasury final regulations effective September 17, 2024 implement the rule for calendar years beginning on or after January 1, 2025.
A non-spouse cannot use a 60-day indirect rollover. To move inherited 401(k) money out of the plan, the transfer must be a direct trustee-to-trustee transfer into a properly titled inherited IRA, and only if the plan permits it (Source: IRS Pub 590-B, 2025). Taking the check personally would generally be treated as a fully taxable distribution.
Do I have to take annual RMDs in years 1 through 9?
Whether you must take annual withdrawals in years one through nine, or only empty the account by year 10, turns on when the owner died relative to their required beginning date. The applicable rule depends on that single timing fact rather than on the beneficiary’s own preference or age. The two scenarios are set out below and are drawn from the 2024 final regulations.
- Owner died on or after the RBD: the beneficiary must take an annual RMD beginning in the first calendar year after the year of death, and still empty the account by the end of year 10 (Source: 2024 final regulations, 89 FR, July 19, 2024).
- Owner died before the RBD: no distribution is required in any year before year 10; the full balance is simply due by December 31 of the 10th year (Source: IRS Pub 590-B, 2025).
The IRS waived the penalty for missed annual RMDs inside the 10-year window for 2021 through 2024 during the transition period, and no make-up distribution is required for those waived years (Source: IRS Notices 2022-53, 2023-54, and 2024-35). For deaths where the owner had reached RMD age, the annual-RMD requirement is now enforced going forward, so a beneficiary in that situation may need a distribution by December 31, 2025 and each year after. Q3 Advisors maintains a separate reference on required minimum distributions for 2026.
Who is an eligible designated beneficiary (and exempt from the 10-year rule)?
Some individuals are exempt from the strict 10-year rule and may generally use life-expectancy (stretch) distributions. IRS Pub 590-B lists eligible designated beneficiaries (EDBs) as the owner’s surviving spouse, the owner’s minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the owner (Source: IRS Pub 590-B, 2025).
A minor child of the owner is an EDB only until reaching the age of majority, set at 21 under the 2024 final regulations. At that point the child switches to the 10-year rule and must empty the account within 10 years of turning 21 (Source: 2024 final regulations, 89 FR, July 19, 2024; IRS Pub 590-B, 2025). A grandchild or other minor who is not the owner’s own child is generally not an EDB.
When does the 5-year rule apply?
A different, shorter deadline applies in narrow cases. When the owner died before the RBD and the beneficiary is not an individual, such as an estate or a non-qualifying trust, the full balance must be distributed by December 31 of the fifth year after death (Source: IRS Pub 590-B, 2025). This 5-year rule also generally governed beneficiaries under the pre-SECURE Act framework for deaths in 2019 or earlier.
What options do all beneficiaries share?
Beyond the deadline rules, most beneficiaries choose among a handful of distribution paths: a lump sum, a transfer to an inherited IRA, leaving the balance in the plan, or a disclaimer. Which paths are available depends on the plan document, and the tax cost and cash-flow effects differ by path (Source: IRS Pub 575 and Pub 590-B, 2025). The options below are presented neutrally, not as recommendations.
| Option | How it works | Key consideration |
|---|---|---|
| Lump-sum distribution | Take the entire balance at once. | The full traditional-account amount is taxed as ordinary income in one year, which can push the beneficiary into higher brackets (Source: IRS Pub 575, 2025). |
| Roll to an inherited IRA | Direct trustee-to-trustee transfer to a properly titled inherited IRA (non-spouses only this way). | Available only if the plan permits it; no 60-day indirect rollover for non-spouses (Source: IRS Pub 590-B, 2025). |
| Leave money in the plan | Keep the inherited balance in the employer plan. | Permitted only if the plan allows it; plan rules can require a faster payout (Source: IRS Pub 575, 2025). |
| Disclaim the inheritance | Decline the assets so they pass to the next beneficiary. | A qualified disclaimer generally must be made within 9 months of death and before accepting any benefit (Source: IRC Section 2518). |
What about employer stock and NUA?
Employer stock inside a 401(k) can add an option that does not exist for an inherited IRA: net unrealized appreciation (NUA). Under NUA treatment, the cost basis of the company stock is taxed as ordinary income when the shares are distributed in kind, while the appreciation can later be taxed at capital gains rates (Source: IRC Section 402(e)(4); IRS Pub 575, 2025).
Because 2026 long-term capital gains rates top out at 20% while ordinary income reaches 37%, the spread can matter. NUA is a plan-specific mechanic with strict rules on lump-sum distribution timing, so many beneficiaries confirm eligibility with the plan administrator before acting.
Worked example: spreading withdrawals across the window
Consider a non-spouse who inherits a $500,000 traditional 401(k) from an owner who died before the RBD in 2025. No interim RMDs are required, so the account can be emptied any time through December 31, 2035. Taking the full $500,000 in one year would add the whole amount to that year’s ordinary income at once, potentially reaching the 32% or 35% bracket for a single filer.
An alternative is to level withdrawals across the window, for example roughly $50,000 per year for 10 years, which spreads the ordinary income across more tax years rather than concentrating it in one (illustrative; individual results vary). Large single-year distributions can also cross other income thresholds, such as the net investment income tax, which applies a 3.8% surcharge above $200,000 MAGI single or $250,000 MFJ (Source: IRC Section 1411). Some beneficiaries pair this with a Roth conversion on their own accounts in lower-income years, weighing how much to convert and the December 31 conversion deadline alongside the inherited-account schedule.
How is an inherited Roth 401(k) taxed?
Qualified distributions from an inherited designated Roth 401(k) are tax-free and excluded from gross income (Source: IRS Pub 575, 2025). A distribution to a beneficiary after the owner’s death is qualified if the Roth account had also satisfied the 5-tax-year participation requirement. The 10-year payout deadline still applies to non-spouse beneficiaries, but the withdrawals are generally not taxable when the account is qualified.
The 5-tax-year clock counts the years since the owner first contributed to a designated Roth account, not from the date of inheritance. If that period was already met before death, earnings come out tax-free; if not, the earnings portion of an early distribution could be taxable even though the deadline rules are otherwise the same as a traditional account (Source: IRS Pub 575, 2025). Because a qualified inherited Roth 401(k) produces tax-free income rather than ordinary income, its distributions do not add to the bracket, NIIT, or IRMAA math that traditional distributions can trigger.
What taxes and penalties apply to an inherited 401k?
Distributions from a traditional inherited 401(k) are taxed as ordinary income and included in the beneficiary’s gross income (Source: IRS Pub 575 and Pub 590-B, 2025). The 10% early-withdrawal penalty does not apply to distributions a beneficiary takes after the owner’s death, at any age (Source: IRS Topic 558, 2025). A missed RMD carries a 25% excise tax, cut to 10% if corrected within two years (Source: SECURE 2.0 Act of 2022, Section 302).
The 10% additional tax normally applies to distributions before age 59.5, but death is a statutory exception. IRS Topic 558 exempts “distributions made to your beneficiary or estate on or after your death,” so a beneficiary of any age can take inherited-account distributions without that penalty (Source: IRS Topic 558, 2025).
The missed-RMD excise tax was changed by SECURE 2.0. Under Section 302 of the SECURE 2.0 Act of 2022, the excise tax on a shortfall is 25%, and it drops to 10% if the beneficiary corrects the shortfall within the two-year correction window; this replaced the prior 50% excise tax that older guides still cite (Source: SECURE 2.0 Act of 2022, Section 302; IRC 4974). Because 2026 ordinary brackets run to 37%, a large distribution can also raise the beneficiary’s taxable income enough to affect other thresholds, which is why timing the withdrawals across the window is a common planning point.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This page is educational and is not advice; consult a qualified professional.
Frequently asked questions
The questions below address what beneficiaries ask most often about inherited 401(k) accounts: how the money is taxed, how the 10-year rule works, how long the payout window runs, how the early-withdrawal penalty applies, what changed in 2025, and whether a rollover is possible. Each answer states the general rule and cites the relevant IRS publication or regulation; individual plan terms and personal circumstances still vary.
How do I avoid paying taxes on an inherited 401(k)?
Taxes on a traditional inherited 401(k) generally cannot be avoided entirely, because distributions are ordinary income (Source: IRS Pub 575, 2025). One approach some beneficiaries use is spreading withdrawals across the 10-year window to smooth the income across tax years and avoid a single high-bracket year. Inherited Roth 401(k) qualified distributions are generally tax-free, and disclaiming passes the assets to another beneficiary. Individual results vary.
What is the 10-year rule for inherited 401(k)?
For deaths in 2020 or later, a non-spouse designated beneficiary who is not an eligible designated beneficiary must withdraw the entire inherited 401(k) by December 31 of the year containing the 10th anniversary of the owner’s death (Source: IRS Pub 590-B, 2025). It replaced the former stretch approach under the SECURE Act of 2019. Annual RMDs may also apply in years one through nine.
Do beneficiaries pay taxes on a 401(k) inheritance?
Yes, in most cases. Distributions from a traditional inherited 401(k) are taxed as ordinary income and included in the beneficiary’s gross income in the year received (Source: IRS Pub 575 and Pub 590-B, 2025). Qualified distributions from an inherited Roth 401(k) are generally tax-free. There is no federal early-withdrawal penalty on beneficiary distributions (Source: IRS Topic 558, 2025).
How long do I have to withdraw money from an inherited 401(k)?
A non-spouse subject to the 10-year rule generally has until December 31 of the year containing the 10th anniversary of death (Source: IRS Pub 590-B, 2025). If the owner died on or after the required beginning date, annual RMDs are also required in years one through nine (Source: 2024 final regulations, July 19, 2024). Surviving spouses and other eligible designated beneficiaries may have longer.
Is an inherited 401(k) subject to the 10% early withdrawal penalty?
No. Distributions taken by a beneficiary or estate on or after the owner’s death are exempt from the 10% early-distribution tax regardless of the beneficiary’s age (Source: IRS Topic 558, 2025). A surviving spouse who rolls the funds into their own account, however, may reintroduce the pre-59.5 penalty on later withdrawals from that account.
What is the new rule for inherited 401(k)s in 2025?
Treasury final regulations effective for calendar years beginning January 1, 2025 confirm that a non-spouse beneficiary under the 10-year rule must take annual RMDs in years one through nine when the owner died on or after the required beginning date (Source: 2024 final regulations, 89 FR, July 19, 2024). Penalties for 2021 through 2024 missed amounts were waived, with no make-up required.
Can I roll an inherited 401(k) into my own IRA?
Only a surviving spouse may roll an inherited 401(k) into their own IRA or eligible employer plan (Source: IRS Pub 590-B and Pub 575, 2025). A non-spouse cannot do that; a non-spouse can only make a direct trustee-to-trustee transfer into a titled inherited IRA, and only if the employer plan permits it. Individual plan rules apply and determine which transfers are available.
Sources
IRS Publication 590-B (2025), Distributions from Individual Retirement Arrangements. IRS Publication 575 (2025), Pension and Annuity Income. IRS Tax Topic 558, Additional Tax on Early Distributions. IRS Retirement Topics, Required Minimum Distributions. Treasury final regulations, Required Minimum Distributions, 89 FR (July 19, 2024). IRS Notices 2022-53, 2023-54, and 2024-35 (RMD transition relief). SECURE 2.0 Act of 2022, Section 302 (reduction of excise tax on failure to take RMDs), amending Internal Revenue Code Section 4974. Internal Revenue Code Section 402(e)(4) (net unrealized appreciation). ERISA Section 205 and Internal Revenue Code Section 417 (survivor annuity and spousal-consent rules). Internal Revenue Code Section 2518 (qualified disclaimers). Internal Revenue Code Section 1411 (net investment income tax).
