Inherited 401k Rules

The 401(k) Doesn't Go Through Probate — But That Doesn't Make It Simple

A 401(k) passes directly to the named beneficiary, bypassing the will and the probate court entirely. That sounds straightforward until you realize the plan administrator has its own claims process, its own required forms, and its own timeline — and none of it aligns with whatever the probate attorney is doing for the rest of the estate.

The rules for inherited 401(k)s differ from inherited IRAs in ways that catch even experienced financial advisors off guard. Plan-specific restrictions, tax-withholding rules, and limited distribution options make 401(k) claims a distinct process.

First Step: Contact the Plan Administrator, Not the Brokerage

Unlike IRAs held at retail brokerages, 401(k) plans are administered by the deceased's employer through a third-party record keeper — Fidelity, Empower, TIAA, Principal, or a similar firm. The plan administrator controls the account, not the brokerage's retail customer service team.

Call the employer's HR or benefits department first. They'll direct you to the plan's bereavement or death claims unit. You'll need the deceased's full name, date of birth, Social Security number, and date of death. Request the plan's specific death claim packet — every plan uses different forms.

Have a certified death certificate ready. Most plan administrators require an original certified copy with a raised seal, not a photocopy. Order at least 15-20 certified copies from the vital records office; each financial institution keeps the copy you submit.

What Beneficiaries Can Do With an Inherited 401(k)

Your options depend on your relationship to the deceased and the plan's own rules. 401(k) plans are not required to offer the same flexibility as IRAs.

Surviving spouse beneficiaries have the most options:

• Roll it into your own 401(k) or IRA. This treats the money as yours — RMDs generally begin for the calendar year you reach your applicable age (73 for people born 1951–1959, 75 for those born in 1960 or later, and an earlier age for prior cohorts), though you can delay the first distribution until April 1 of the following year. A 401(k) may let a non-5%-owner who is still working delay RMDs until retirement, if the plan permits. This is typically the strongest move for a younger surviving spouse.
• Keep it as an inherited 401(k). Distributions are penalty-free regardless of your age, which matters if you're under 59½ and need access to the funds.
• Use the SECURE 2.0 Section 327 election. This lets you be treated as the deceased employee for RMD purposes, using the more favorable Uniform Lifetime Table. If the deceased died before their RBD, your first RMD is deferred until the year they would have reached their applicable RMD age.
• Take a lump sum. The entire balance is distributed at once and taxed as ordinary income in the year received. Rarely advisable unless the balance is small.

Non-spouse beneficiaries (adult children, siblings, friends) have fewer choices:

• Transfer to an inherited IRA. Most beneficiaries roll the 401(k) into an inherited IRA at a retail brokerage, which provides more investment options and distribution flexibility. You cannot roll it into your own IRA — only surviving spouses can do that.
• Stay in the plan (if allowed). Some 401(k) plans permit non-spouse beneficiaries to keep funds in the plan. Many don't — the plan document controls.
• Take a lump sum. Same as above: fully taxable as ordinary income.

The 10-Year Depletion Rule

Non-spouse designated beneficiaries must fully empty the inherited 401(k) by December 31 of the year containing the 10th anniversary of the owner's death. No exceptions.

If the original owner died on or after their Required Beginning Date, you must also take annual required minimum distributions in years one through nine, with the remainder due in year 10. If the owner died before their RBD, no annual distributions are required — you can time withdrawals however you want within the 10-year window.

The few exceptions apply to Eligible Designated Beneficiaries: surviving spouses, disabled or chronically ill individuals, minor children of the deceased (under age 21), and individuals not more than 10 years younger than the deceased. These beneficiaries can still stretch distributions over their life expectancy.

401(k)-Specific Complications That Don't Apply to IRAs

Federal withholding. A taxable nonperiodic 401(k) distribution to a non-spouse beneficiary generally has 10% federal withholding by default, unless the beneficiary elects another rate. The mandatory 20% rate generally applies to eligible rollover distributions, which beneficiary payments usually are. Withholding is a prepayment — you'll reconcile when you file your tax return.

Employer stock (NUA). If the 401(k) holds company stock, the Net Unrealized Appreciation rules can save substantial taxes. The cost basis of the stock is taxed as ordinary income at distribution, but the appreciation is taxed at the lower long-term capital gains rate when eventually sold. This only works on lump-sum distributions — partial distributions forfeit NUA treatment.

Plan restrictions. The 401(k) plan document may limit your options. Some plans require lump-sum distribution within a set period. Others don't allow non-spouse beneficiaries to remain in the plan at all. The plan administrator's claims packet will spell out what the plan specifically allows.

No beneficiary designation on file. If the deceased never named a beneficiary — or named a former spouse who was never updated — the plan's default provisions apply. Most plans direct the balance to the surviving spouse first, then to the estate. When it goes to the estate, distribution timing depends on whether the participant died before or after their Required Beginning Date: the five-year rule applies before it, and the deceased's remaining life expectancy applies after it.

Tax Planning Across the 10-Year Window

Taking the entire 401(k) as a lump sum in a single year pushes all of it into that year's tax bracket — potentially the 32% or 37% federal bracket on a large balance. Spreading distributions over the full 10 years keeps more income in lower brackets.

A basic approach: divide the account balance by the remaining years in the 10-year window and withdraw approximately that amount each year. A CPA can model the optimal distribution schedule based on your other income, state tax rates, and whether you have years with unusually low income where larger withdrawals would be taxed at lower rates.

Roth conversions aren't available on inherited 401(k)s — you can't convert inherited retirement funds. But you can coordinate your inherited 401(k) distributions with your own retirement contributions and Roth conversions to manage your overall tax picture.

What to Do This Week

Get the plan administrator's contact information from the employer's HR department. Request the death claim packet and a date-of-death valuation statement. Find out whether the plan requires a lump-sum distribution or permits installment payments.

If you're a non-spouse beneficiary, ask whether the plan allows you to transfer the balance to an inherited IRA — this usually gives you more control over timing and investments.

The Retirement Account Claims toolkit includes custodian contact scripts, a document submission tracker, and a distribution planning worksheet that covers 401(k)-specific scenarios alongside IRAs, pensions, and superannuation.