What is the 10-year rule for an inherited 401(k)?

Under the SECURE Act, most non-spouse beneficiaries who inherit a 401(k) after 2019 must fully distribute the account by December 31 of the tenth year following the account owner's death. There is no requirement to spread withdrawals evenly across those years—you could take nothing in years 1-9 and everything in year 10—but if the original owner had reached their Required Beginning Date before death, IRS final regulations (T.D. 10001, July 2024) also require annual RMDs in years 1-9.

Do I have to take RMDs from an inherited 401(k) every year?

It depends on whether the original account owner had reached their Required Beginning Date (RBD) before death. The RBD is April 1 of the year after reaching age 73 (if born 1951-1959) or age 75 (if born 1960 or later) under SECURE 2.0. If the owner died after their RBD, you must take annual RMDs in years 1-9 of the 10-year window and deplete the account by year 10. If the owner died before their RBD, no annual RMDs are required—you can take distributions on any schedule as long as the account is empty by December 31 of year 10.

Can I roll an inherited 401(k) into my own IRA?

Only if you are the surviving spouse. Spouses can roll an inherited 401(k) into their own IRA, delaying RMDs until they reach their own Required Beginning Date. Non-spouse beneficiaries cannot roll an inherited 401(k) into their own IRA. They must open a separately titled inherited IRA—typically titled something like 'John Smith, deceased, for the benefit of Jane Smith'—and take distributions under the applicable beneficiary rules.

What is the 20% withholding trap on an inherited 401(k)?

If a distribution from an inherited 401(k) is paid directly to you rather than to an inherited IRA custodian, the plan must withhold 20% of the gross amount for federal income taxes under IRC §3405(c). This withholding is mandatory and cannot be waived. To avoid it, always request a direct trustee-to-trustee transfer: the 401(k) plan wires funds directly to your inherited IRA custodian. No withholding applies, and you avoid the risk of owing tax on an amount you intended to roll over.

How is an inherited 401(k) taxed?

Every dollar you withdraw from an inherited traditional 401(k) is ordinary income in the year of withdrawal—taxed at your marginal bracket, which can reach 37% for 2026. There is no long-term capital gains rate, no step-up in basis, and no further rollover to defer tax. However, the 10% early withdrawal penalty under IRC §72(t) does not apply to inherited accounts regardless of your age. Spreading distributions across all 10 years to stay in lower brackets is the primary tax strategy.

What are the rules for an inherited Roth 401(k)?

Non-spouse beneficiaries who inherit a Roth 401(k) face the same 10-year distribution deadline. However, because the Roth account owner had no Required Beginning Date during their lifetime, no annual RMDs are required in years 1-9—you can leave the account untouched until year 10. Qualified distributions from an inherited Roth are income-tax free provided the original Roth account was at least 5 years old at the time of distribution. Rolling the inherited Roth 401(k) to an inherited Roth IRA via direct trustee-to-trustee transfer is almost always the right first move.

What happens if no beneficiary was named on the 401(k)?

If the estate is the named beneficiary or no beneficiary designation exists, the 401(k) typically passes through probate and loses the favorable 10-year rule. If the owner died before their Required Beginning Date, the account must be fully distributed within 5 years. If the owner died after their RBD, distributions continue over the owner's remaining life expectancy—with no flexibility over timing. Naming individual beneficiaries directly on the plan form (not just in a will) is critical: wills do not control retirement account beneficiary designations.

Inherited 401(k) Planning: Beneficiary Rules, RMDs, and Tax Strategies

Inheriting a 401(k) can create a substantial windfall—but most beneficiaries don't realize they face a 10-year distribution deadline, potential annual RMD requirements during that period, and a mandatory 20% withholding trap if they move the money the wrong way. Here's what the rules actually say in 2026.

The first question: are you a spouse or non-spouse beneficiary?

The rules for inherited 401(k) accounts split sharply at the spouse/non-spouse line. Surviving spouses have the most flexibility; most other beneficiaries fall under the SECURE Act's 10-year rule.

Beneficiary Type	Distribution Method	Annual RMD Required?
Surviving spouse	Roll to own IRA — RMDs deferred to own Required Beginning Date	Not until your own RBD
Surviving spouse (under 59½)	Keep as inherited IRA for penalty-free access; roll to own IRA later	Flexible; spouse can roll anytime
Minor child of the account owner	Stretch (life expectancy) until age of majority, then 10-year rule kicks in	Yes — annual until majority, then 10-year window
Disabled or chronically ill individual	Stretch (life expectancy) for life	Yes — annual over life expectancy
Individual within 10 years of decedent's age	Stretch (life expectancy) for life	Yes — annual over life expectancy
All other non-spouse beneficiaries	10-year rule — account must be empty by Dec 31 of year 10	Only if decedent died after their RBD

The top four categories (below surviving spouse) are called Eligible Designated Beneficiaries (EDBs). If you qualify as an EDB, you use the stretch method rather than the 10-year rule. For most adult children, siblings, and non-related beneficiaries, the 10-year rule applies.

Non-spouse beneficiaries: how the 10-year rule works

If you are a non-EDB inheriting a 401(k), you must fully distribute the account by December 31 of the tenth year following the account owner's death.¹ The law sets only the outer deadline—you can take distributions in any pattern within that window. But there is a critical exception based on when the account owner died.

The annual RMD layer — T.D. 10001 (July 2024):

IRS final regulations issued July 2024 resolved a long-standing uncertainty: if the original account owner died on or after their Required Beginning Date (RBD), non-EDB beneficiaries must also take annual RMDs during years 1-9 of the 10-year period.² The RBD is April 1 of the year after the owner reached:

Age 73 — if born 1951 through 1959 (SECURE 2.0 §107)
Age 75 — if born 1960 or later (SECURE 2.0 §107)³

If the owner died before their RBD, no annual RMDs apply. You can take nothing in years 1-9 and clear the account in year 10 if you choose.

Annual RMD amounts during the 10-year period are calculated using the decedent's remaining life expectancy from the Single Life Expectancy Table, reduced by one for each subsequent year. Missing a required annual RMD triggers a 25% excise tax on the shortfall under IRC §4974—reduced to 10% if corrected within two years.¹ The IRS waived penalties for missed annual RMDs in 2021-2024; enforcement for the 2025 distribution year (the first year penalties fully apply) began in 2026.

The most costly mistake: triggering the 20% mandatory withholding

When you inherit a 401(k), the plan administrator may offer to send you a check or direct deposit. Do not accept a direct payment if your goal is to move the funds to an inherited IRA. Under IRC §3405(c), any eligible rollover distribution paid directly to you—rather than to a qualifying IRA custodian—triggers mandatory 20% federal income tax withholding.⁴ You cannot waive it, regardless of your intent to roll the money over.

How the withholding trap plays out:

You inherit a $500,000 traditional 401(k)
You request a distribution check to "move it" to an inherited IRA
The plan withholds 20% — you receive a check for $400,000
To roll the full $500,000 to the inherited IRA (avoiding tax on the $100,000), you must deposit $500,000 total within 60 days — covering the withheld $100,000 from other funds
If you deposit only $400,000, the missing $100,000 is treated as ordinary income in that tax year, plus you lose the tax-deferred compounding on that amount permanently

The correct approach is a direct trustee-to-trustee transfer: the 401(k) plan wires funds directly to your inherited IRA custodian. No withholding applies, no 60-day window, no scramble for out-of-pocket funds. Set up the inherited IRA at your chosen custodian before initiating any transfer, and confirm with both the plan administrator and the IRA custodian that they are coordinating a direct wire—not a check to you.

One additional constraint: non-spouse beneficiaries cannot roll an inherited 401(k) into their own IRA. The account must go into a separately titled inherited IRA—something like "John Smith (deceased [date]), FBO Jane Smith." Using the wrong account type triggers distribution rules that can't be undone.

Inherited Roth 401(k): better tax outcome, same 10-year deadline

Non-spouse beneficiaries who inherit a Roth 401(k) face the same 10-year distribution deadline as traditional 401(k) inheritors. But because the Roth 401(k) owner had no Required Beginning Date during their lifetime, T.D. 10001 reaches a different conclusion: no annual RMDs are required in years 1-9 of the 10-year period.² You can leave the inherited Roth IRA untouched for nine years and take one large tax-free distribution in year 10.

For distributions to be income-tax free, the original Roth account generally must have been established for at least 5 years at the time of distribution. If you are inheriting a Roth 401(k) that is less than 5 years old, coordinate with a tax advisor on the qualified distribution rules before taking money out.

Rolling an inherited Roth 401(k) to an inherited Roth IRA via direct trustee-to-trustee transfer is almost always the right first step. Roth 401(k) accounts inside an employer plan may be subject to the plan's own distribution rules, which can be more restrictive than the inherited Roth IRA rules. Once the assets are in an inherited Roth IRA, you control the timing of distributions within the 10-year window.

How distributions from an inherited 401(k) are taxed

Every dollar you withdraw from an inherited traditional 401(k) is ordinary income in the year you take it—taxed at your marginal federal bracket, which reaches 37% at $626,350 of taxable income for a single filer in 2026 (per Rev. Proc. 2025-32).⁵ There is no long-term capital gains rate and no step-up in basis. Distributions are stacked on top of all your other income before determining the marginal bracket for the year.

One favorable rule: the 10% early withdrawal penalty does not apply to inherited accounts. Under IRC §72(t)(2)(A)(ii), distributions from an inherited IRA or inherited 401(k) are penalty-free at any age.⁶ A 35-year-old beneficiary can take distributions without the extra 10% penalty that would apply to their own retirement account before age 59½.

Tax bracket strategy during the 10-year window:

Most beneficiaries should not wait until year 10 to take everything. A single-year distribution of a large 401(k) often pushes most of the income into the 35% or 37% bracket. Spreading distributions across the 10-year window to fill lower brackets each year—coordinating around your salary, capital gains, and other income sources—is typically the highest-leverage tax move available.

In years with unusually low income (career transition, sabbatical, business loss), take larger inherited distributions to fill the 22% or 24% bracket
In years with high income (bonus, business sale, large capital gains), keep the inherited distribution minimal
Model the full 10-year picture before year 1 — changing course in year 8 limits your remaining options

IRMAA exposure from inherited 401(k) distributions

If you are 63 or older—or approaching Medicare eligibility in the next two years—inherited 401(k) distributions feed directly into the IRMAA lookback. Medicare premiums for a given year are determined by your MAGI two years prior. A large distribution in 2026 affects your 2028 Part B and Part D premiums.⁷

2026 MAGI (Single)	2026 MAGI (MFJ)	Part B Monthly Premium	Part D Add-On
≤$109,000	≤$218,000	$202.90	plan premium only
$109,001–$137,000	$218,001–$274,000	$289.20	+$14.50/mo
$137,001–$171,000	$274,001–$342,000	$375.60	+$37.60/mo
$171,001–$205,000	$342,001–$410,000	$462.00	+$60.70/mo
$205,001–$500,000	$410,001–$750,000	$548.40	+$83.80/mo
Over $500,000	Over $750,000	$689.90	+$91.00/mo

Per CMS 2026 Medicare Parts B and D premium fact sheet.⁷

At the highest tier, combined Part B + Part D IRMAA surcharges can add over $9,000/year per person above the base premium—over $18,000/year for a couple. For a beneficiary on Medicare, capping annual 401(k) distributions at the IRMAA tier boundary below can be worth thousands of dollars each year of the 10-year window. Coordination with DAF charitable contributions or your own IRA's qualified charitable distributions (QCDs at age 70½+) can help manage MAGI.

What if no beneficiary was named?

If the estate is the named beneficiary—or no beneficiary designation exists on the plan—the 401(k) typically passes through probate and loses access to the favorable 10-year rule available to named individual beneficiaries.

Owner died before RBD: the entire account must be distributed within 5 years of death (rather than 10).
Owner died after RBD: distributions must continue over the owner's remaining life expectancy from the applicable table—with no flexibility over timing and no 10-year option.

Additionally, passing through an estate requires probate, which delays access and adds legal and administrative costs. This matters especially for 401(k) plans with large balances where a year or more of delayed access translates directly into lost tax-deferred compounding.

The practical lesson for anyone still alive: beneficiary designations on retirement accounts must be updated directly on the plan form—not just in a will. Wills do not control beneficiary designations on 401(k) plans or IRAs. The plan form controls. Update it after major life events: marriage, divorce, birth of children, death of a previously named beneficiary.

Surviving spouse: the full set of options

Surviving spouses have more flexibility than any other beneficiary category. The key early decision is whether to treat the inherited 401(k) as your own or keep it as an inherited account initially.

Roll to your own IRA: RMDs don't begin until your own Required Beginning Date. If you are substantially younger than the deceased, this can defer RMDs for many years and keep the account growing tax-deferred.
Keep as inherited IRA (if under 59½): Distributions from an inherited IRA are penalty-free at any age, unlike your own IRA before 59½. If you need income before that age, keeping the inherited designation preserves penalty-free access. After you turn 59½, you can roll the inherited IRA into your own IRA and resume the longer RMD schedule.
QPSA protection: Many 401(k) plans require a spouse's written consent to name anyone else as beneficiary under qualified pre-retirement survivor annuity (QPSA) rules. If you are the spouse and believe you should be the primary beneficiary but are not named, contact the plan administrator immediately and request the plan document.

First-year checklist for an inherited 401(k)

Contact the plan administrator promptly. Notify the employer's HR or plan administrator within 30 days of the account owner's death. Request a copy of the beneficiary designation on file and the plan document. Some plans impose distribution timelines shorter than federal law requires—knowing the plan's own rules matters.
Set up the inherited IRA before moving any money. Open an inherited IRA (or inherited Roth IRA if the source is a Roth 401k) at your preferred custodian. The account title must include the decedent's name and your name as beneficiary. Do not open a regular IRA—the tax and distribution rules are completely different.
Request a direct trustee-to-trustee transfer. Complete the plan's distribution paperwork specifying a direct wire to your inherited IRA custodian. Confirm the plan will wire directly—not send a check to you. Accepting a check triggers the 20% mandatory withholding under IRC §3405(c), which may not be recoverable.
Determine the required beginning date question. Did the account owner die before or after their Required Beginning Date? This is the single most important factual question—it determines whether you owe annual RMDs in years 1-9 or have full flexibility over timing within the 10-year window. Calculate this with a tax advisor before year-end of the year of death.
Model the full 10-year tax picture. Build a year-by-year projection of inherited distributions combined with your salary, capital gains, and other income. Identify which years offer the lowest marginal rates for larger distributions and which years require minimal draws to avoid bracket spillover or IRMAA exposure. Lock in a plan before you start drawing.
Adjust estimated tax payments. Distributions from an inherited IRA are not automatically withheld at the plan level (unlike employer 401(k) distributions). If you take substantial distributions, pay quarterly estimated taxes to avoid an underpayment penalty. The safe harbor is 110% of prior-year tax liability if your prior-year AGI exceeded $150,000.⁵
Review and update your own beneficiary designations. Inheriting a large 401(k) may change your own estate planning picture. Update your will, trust, and the beneficiary forms on your own retirement accounts and insurance policies to reflect the change in your net worth.

Get matched with a sudden wealth specialist

Inherited 401(k) planning involves annual RMD calculations, 10-year bracket optimization, IRMAA management, and coordination with your own retirement accounts and broader financial plan. A fee-only advisor who works with windfall and inheritance planning can build the full drawdown model and coordinate with your CPA without a product conflict of interest.

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IRC §401(a)(9) — Required minimum distribution rules; IRS Publication 590-B, Distributions from Individual Retirement Arrangements (applies by reference to 401(k) inherited distributions; 25% excise tax on shortfalls per SECURE 2.0 §302): irs.gov/publications/p590b
T.D. 10001 (July 19, 2024) — IRS final regulations on RMDs under §401(a)(9), including annual RMD requirement for non-EDB beneficiaries when decedent died on or after RBD; no annual RMDs for Roth account inheritors: irs.gov/pub/irs-drop/td-10001.pdf
SECURE 2.0 Act §107 — RMD age changes: age 73 for individuals born 1951-1959; age 75 for individuals born 1960 or later; IRS Notice 2024-2, Q&A on SECURE 2.0 implementation: irs.gov/pub/irs-drop/n-24-2.pdf
IRC §3405(c) — Mandatory 20% income tax withholding on eligible rollover distributions from qualified plans; IRS Topic no. 413, Rollovers from retirement plans: irs.gov/taxtopics/tc413
IRS Rev. Proc. 2025-32 — 2026 tax year inflation adjustments including ordinary income bracket thresholds and estimated tax safe harbor: irs.gov/pub/irs-drop/rp-25-32.pdf
IRC §72(t)(2)(A)(ii) — Exception to the 10% additional tax on early distributions from qualified retirement plans for distributions to a beneficiary after the account owner's death: law.cornell.edu/uscode/text/26/72
CMS 2026 Medicare Parts B and D premiums and deductibles fact sheet — IRMAA tier income thresholds and monthly premium amounts for Part B and Part D: cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-and-d-premiums-and-deductibles

Tax values and RMD rules verified as of September 2026. The SECURE Act 10-year rule and T.D. 10001 annual RMD requirements are current law; work with a CPA each year to calculate your specific RMD amount and projected tax exposure.