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What happens if you inherit a 401(k)?

Key takeaways

  • If you inherit a 401(k), how to access the assets in the account depends on the plan's rules, your relationship to the original account owner, and the age of that owner at the time of their death, among other factors.
  • If the account owner died after January 1, 2020, most non spouse beneficiaries must empty the account within 10 years following the account holder's death.
  • Only a spouse has the option of transferring inherited 401(k) assets into their own retirement account, such as a 401(k) or IRA.

If you've inherited a 401(k), your options depend on a variety of factors, including but not limited to the plan's rules, your relationship to the account owner, the age of that owner at the time of their death, and whether they started taking required minimum distributions (which start at age 731). Spouses have more options than non spouse beneficiaries. Below are your primary options depending on your beneficiary status. You may want to consult a financial or tax advisor to review what makes sense for your situation.

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Options for an inherited 401(k) if you are a spouse beneficiary

Take a lump-sum distribution

A spouse can receive their portion of a 401(k) account as a lump sum, penalty-free. The IRS taxes lump-sum distributions as ordinary income (except for any Roth IRA that has met certain requirements2), and, depending on the account balance and your income level, this could create a substantial tax bill.

Roll inherited assets into your own retirement account

Spouses can roll assets into their own 401(k) or IRA. If the original account owner had already started taking required minimum distributions (RMDs), the spouse may choose to continue taking RMDs or roll over the 401(k) into an account in their name, and wait until they turn 73, the age when RMDs begin. Rollovers of pre-tax funds to a Roth retirement account would be subject to tax.

SECURE Act 2.0 also allows a spouse to elect to be treated as the original employee, for purposes of using the Uniform Lifetime Table for RMDs. (Beneficiaries typically use the Single Life Expectancy Table to calculate RMDs.) This provision goes into effect starting in 2024. It may be advantageous for a surviving spouse who is older than the deceased spouse, because the surviving spouse could wait to take RMDs until the deceased spouse would have reached age 73. They could then use the Uniform Life Table that may be a longer period than the Single Life Expectancy Table. Until then, the funds continue growing tax-deferred, or tax-free in the case of a Roth 401(k).

If the spouse is younger than 59½, rolls funds over into their own retirement account and makes withdrawals, they will be subject to a 10% early withdrawal penalty and withdrawals will be taxed as ordinary income.

This option is available only to spouse beneficiaries.

Roll over funds into an inherited IRA

Spouses can roll over inherited 401(k) assets into an inherited IRA. The IRS waives any early withdrawal penalties for owners of inherited IRAs so they can withdraw at any time.

If they wish to wait until RMDs are mandatory, the timing of the initial distribution may be based on the deceased spouse's age at the time of their death, but the amount of the RMDs may be based on the surviving spouse's age if longer than the remaining life expectancy of the deceased spouse. Unlike most non spouse beneficiaries, spouse beneficiaries don't have to draw down the account within a certain amount of time.

Options for an inherited 401(k) if you are a non spouse beneficiary

Take a lump-sum distribution

Non spouse beneficiaries can receive their portion of a 401(k) account as a lump sum with the same guidelines as a spouse beneficiary above. Note: Once a lump sum is taken, the 401(k) balance cannot be rolled over.

Roll over funds into an inherited IRA

Non spouse beneficiaries can also do a direct trustee-to-trustee transfer of inherited 401(k) funds into an inherited IRA, following rules similar to inheriting someone's IRA. The IRS waives any early withdrawal penalties for owners of inherited IRAs so they can withdraw at any time.

Some rules about this option: First, the non spouse beneficiary can't make additional contributions to an inherited IRA. Second, unlike a spouse beneficiary who has a more flexible schedule to empty an inherited IRA, certain non spouse beneficiaries will need to withdraw all funds in an inherited IRA opened after January 1, 2020, no later than 10 years after the original account owner's death. IRS regulations require RMDs during the 10-year period to be taken at least as often as they would have been taken under the original owner's remaining life expectancy, (as opposed to inheriting before RMDs commenced, which would allow not withdrawing any money in years 1–9, then draining the account all in one go in year 10.) Thus, if the owner was age 73 or would have reached age 73 during the 10-year period, the beneficiary must take RMDs accordingly within the 9 years and take the final distribution in the 10th year.

The penalty for not emptying the account within 10 years is 25% of the remaining account balance, which can be reduced to 10% if corrected within 2 years.

In addition to a surviving spouse, other eligible designated beneficiaries who don't have to withdraw within 10 years include a minor child of the account owner, someone who is disabled or chronically ill, or a beneficiary who is not more than 10 years younger than the original IRA owner. These 3 exceptions may take RMD withdrawals based on their age or the age of the original account owner, whichever is longer, if the account owner was already taking RMDs prior to death.

A minor child has these options:

  • Lump-sum distribution
  • The 10-year rule, when no money is required to be distributed in years 1–9 and the account must be fully distributed in year 10, provided the decedent had not started RMDs
  • Life expectancy distributions through age 21, then life expectancy distributions from ages 22–30 with a complete distribution at age 31 (combination life expectancy and 10-year rule)

Note: If you roll over the 401(k) into an inherited IRA, non spouse beneficiaries do not have bankruptcy protection unless your state has laws that protect it from claims by creditors. Speak with an attorney or tax professional before taking any distribution from a retirement account or if you have questions regarding protection from creditors.

What if I inherited a Roth 401(k)?

While the SECURE 2.0 Act eliminated RMDs for Roth 401(k) original account owners, Roth 401(k) beneficiaries must take withdrawals following one of the distribution periods listed above based on whether the beneficiary is a spouse, non spouse, or a non spouse with an exception.

Options for an inherited 401(k) for both spouse and non spouse beneficiaries

Leave the money in the plan

Some plans let beneficiaries stay in the plan. All plans are different, and spouse and non spouse beneficiaries must adhere to plan rules.

Disclaim, or decline to inherit, all or part of the assets

Beneficiaries can decline to inherit their portion, in which case assets would go to the next eligible beneficiaries. If there are no other beneficiaries or they disclaim as well, the assets will pass to the account owner's estate and become subject to probate.

Is an IRA right for you?

We can help you decide whether you might want a traditional, Roth, or rollover IRA.

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The change in the RMDs age requirement from 72 to 73 applies only to individuals who turn 72 on or after January 1, 2023. After you reach age 73, the IRS generally requires you to withdraw an RMD annually from your tax-advantaged retirement accounts (excluding Roth IRAs, and Roth accounts in employer retirement plan accounts starting in 2024). Please speak with your tax advisor regarding the impact of this change on future RMDs.


For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

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Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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