Does a 401(k) Beneficiary Pay Taxes? – Avoid This Mistake + FAQs

Inheriting a 401(k) can be a financial windfall, but it also raises serious questions about taxes.

When you become the beneficiary of a 401(k) retirement account, you need to understand what part of that money you get to keep and what part might go to Uncle Sam.

The truth is, 401(k) beneficiaries often do have to pay taxes, but the exact tax bill depends on several key factors.

Traditional vs. Roth 401(k): Inherited Account Tax Differences 💰

A traditional 401(k) is funded with pre-tax dollars, meaning the original owner deferred taxes on contributions and earnings.

For the beneficiary, this translates into taxable income when money comes out of the inherited 401(k). If you inherit a traditional 401(k), any withdrawals you take will generally be taxed at your ordinary income tax rate in the year you receive the money.

The inheritance itself isn’t immediately taxed the moment you become the owner; rather, the IRS takes its share as you withdraw funds. This means you have some control over the timing and size of withdrawals to manage your tax hit.

However, sooner or later, Uncle Sam will demand taxes on every dollar of a traditional 401(k) that the original owner never paid taxes on. Whether you take a lump sum or periodic withdrawals, be prepared for a portion to go to federal (and often state) income taxes.

Roth 401(k) Inheritance – How It’s Taxed

A Roth 401(k) is funded with after-tax money, so the big advantage is tax-free withdrawals if certain conditions are met. When you inherit a Roth 401(k), the distributions you take are usually completely tax-free, including all the investment earnings, as long as the account was held for at least five years by the original owner.

In practical terms, this means a beneficiary of a Roth 401(k) can often inherit the account balance without owing any income tax on withdrawals.

Even though you must eventually take the money out (under rules we’ll discuss), the IRS won’t take a cut of those withdrawals if the Roth was qualified.

One caveat: if the Roth 401(k) was relatively new (open for less than five years), then earnings withdrawn by the beneficiary could be taxable until the five-year rule is satisfied, but the original contributions are still tax-free.

Overall, inheriting a Roth 401(k) generally provides a tax-free inheritance, making it an especially attractive asset for your heirs.

Spouse Inheriting a 401(k): Special Tax Rules and Options 💍

Spouses have unique privileges when it comes to inheriting a 401(k). The tax code gives surviving spouses more flexibility than any other beneficiary type.

If you’re a spouse inheriting a 401(k) from your husband or wife, you essentially step into a special category with choices not available to others. These options can drastically affect when and how you pay taxes on the inherited funds.

A spouse beneficiary typically has three main options for handling an inherited 401(k), each with different tax implications:

• Roll Over to Your Own Retirement Account: You can move the 401(k) funds into your own IRA or even your own 401(k) plan, if it accepts rollovers. This is often the most popular choice because it allows the money to continue growing tax-deferred under your name.

• By rolling it over to your own account, you effectively treat the money as if it were always yours. No taxes are due at the time of the rollover, and future withdrawals will be taxed (or not taxed, in the case of a Roth) based on your own retirement account rules.

• Important considerations: Once the funds are in your own IRA, the account follows the normal rules for your own retirement money. If you’re under 59½ and withdraw from the rollover IRA, you could face a 10% early withdrawal penalty (since it’s now your own money).

• On the other hand, if you’re younger than your spouse, rolling over gives you extra years before you must start required minimum distributions (you can wait until you reach your RMD age). Overall, moving an inherited 401(k) into your own account is generally a tax-smart move for spouses who don’t need immediate access to the cash.

• Remain as a Beneficiary (Inherited IRA or 401(k)): As a spouse, you may choose to keep the funds in an inherited IRA (beneficiary IRA) or even leave it in the original 401(k) plan, if the plan allows. In this scenario, the account stays in the name of your deceased spouse for your benefit (e.g., “John Doe 401(k) for the benefit of Jane Doe”).

• The money still grows tax-deferred, and you do not pay taxes until you withdraw funds.
  Because you’re a spouse, you have a special perk: you can postpone required minimum distributions from this inherited account until the year your spouse would have reached their RMD age.

• Also, any withdrawals you take are not subject to the 10% early withdrawal penalty, even if you’re under 59½ (death distributions are exempt from penalties). This setup is beneficial if you might need to tap the funds before age 59½ — you avoid penalties that would apply if you had rolled it into your own account.

• However, once you reach the date when your late spouse would have needed to start RMDs, you’ll have to begin taking minimum distributions based on your life expectancy.

• Those withdrawals will be taxed as ordinary income if it’s a traditional 401(k). The good news is you always retain the option to do a rollover to your own IRA later when it suits your situation (for instance, after you turn 59½).

• Take a Lump-Sum Payout: You can choose to withdraw the entire 401(k) balance as a one-time lump sum cash payment. This choice triggers immediate taxation of the whole amount in a single year.

• The upside is you get all the money at once without keeping it in a retirement account, which might be useful if you have pressing financial needs or debts. There is also no 10% early withdrawal penalty on a death benefit paid to a beneficiary, regardless of your age.

• But beware the tax bomb: The entire distribution will be added to your income for that year, which could push you into a much higher tax bracket. For example, if you inherit a $300,000 traditional 401(k) and cash it out in one year, a large portion of that money could be taxed at the top income tax rates, significantly reducing what you keep.

• Usually, taking a lump sum is the least tax-efficient choice. It’s typically considered only if the immediate need for cash outweighs the tax costs, or if the 401(k) balance is small enough that the tax impact is minimal.

💡 Tip for Spouses: Many surviving spouses choose a rollover to an IRA to maximize tax deferral. But if you’re younger and might need the money soon, consider staying as a beneficiary temporarily to take advantage of penalty-free withdrawals.

Always evaluate your financial needs and maybe consult a financial advisor to pick the option that best balances immediate access with long-term tax efficiency.

⏳ Non-Spouse Inherited 401(k): Tax Implications of the 10-Year Rule

If you inherit a 401(k) from someone other than your spouse (for example, from a parent, sibling, or friend), the rules are different and often more restrictive.

Non-spouse beneficiaries don’t get the same leeway as spouses, especially after recent law changes. The biggest factor is the 10-year rule: in most cases, you must withdraw all the money from an inherited 401(k) by the end of the 10th year after the original owner’s death.

This rule was introduced by the SECURE Act and dramatically changed how non-spouse heirs manage inherited retirement accounts.

There are a few exceptions to the 10-year deadline. Certain beneficiaries classified as “eligible designated beneficiaries” are allowed to stretch distributions over their lifetime instead of the 10-year limit.

Eligible designated beneficiaries include the account owner’s minor children (until they reach adulthood), disabled or chronically ill individuals, and beneficiaries who are no more than 10 years younger than the deceased.

However, for the vast majority of non-spouse beneficiaries — like adult children — the 10-year rule applies, meaning the entire account must be withdrawn (and taxed) within ten years.

Importantly, the 10-year rule doesn’t require equal annual withdrawals; you have flexibility to take money out at any intervals during that period.

Just remember, delaying too long could result in a big tax hit if you end up emptying the account in the final year.

As a non-spouse beneficiary, you generally have two main options when dealing with an inherited 401(k):

• Direct Transfer to an Inherited IRA: In most cases, it’s wise to transfer the 401(k) balance into an “inherited IRA” set up in your name as the beneficiary. This move is typically done as a trustee-to-trustee transfer to avoid any withholding or immediate tax.

• An inherited IRA allows you to continue deferring taxes on the account’s growth while you plan your withdrawal strategy under the 10-year rule. You won’t owe any taxes at the time of the transfer, and the money can stay invested.

• Crucially, you have the freedom to withdraw from the inherited IRA on your own timetable, as long as the entire account is emptied by the end of year ten following the original owner’s death. Each withdrawal will be subject to income tax if it’s a traditional 401(k), so plan them to manage your tax brackets wisely.

• The good news is no early withdrawal penalties apply to these inherited IRA distributions, regardless of your age. If the inherited 401(k) was a Roth, you would transfer it into an inherited Roth IRA, and those withdrawals would be tax-free so long as the Roth’s five-year rule has been met (ensuring all earnings are qualified).

• Take a Lump-Sum Distribution: The other option is to cash out the entire inherited 401(k) in one go. This approach is straightforward but often costly tax-wise. If you withdraw the full balance at once, the whole amount is taxed as income in that year. On the bright side, there’s no 10% early withdrawal penalty on inherited 401(k) money, so you won’t face additional penalties for taking it all, no matter your age.

• However, beware of a taxable windfall: Cashing out can push you into a higher income tax bracket, meaning a large portion of your inheritance might be taxed at the top rates.

• For example, taking a $200,000 inheritance in one year could cause much of it to be taxed at high marginal rates, drastically reducing what you keep. Most experts recommend avoiding the lump-sum approach unless the inherited account is small or you absolutely need the cash immediately. Even under the 10-year rule, it’s usually better to spread withdrawals over several years to minimize the total tax hit.

💡 Key Point for Non-Spouses: You can’t keep an inherited 401(k) forever – for most, the 10-year clock is ticking. Plan your withdrawals strategically within that period.

Transferring to an inherited IRA gives you flexibility to control your tax hit each year, whereas a lump sum could mean a hefty tax bill in one shot.

Remember that if you qualify as an eligible designated beneficiary, you might have more favorable options than the 10-year rule, so ensure you understand which category you fall into.

🏛️ Estate as 401(k) Beneficiary: Why Taxes Hit Faster

What happens if a 401(k) doesn’t have a living person named as beneficiary? In that case, the account usually ends up in the deceased’s estate.

When an estate (rather than an individual) inherits a 401(k), the tax treatment becomes much less favorable.

Estates are not “designated beneficiaries” under IRS rules, so they don’t get to use the 10-year rule or stretch distributions over a long life expectancy (except in a limited way). Instead, the timeline for withdrawals accelerates, forcing the money out — and onto the tax rolls — relatively quickly.

If the 401(k) owner died before starting required minimum distributions, the general rule is that the entire account must be distributed by the end of the fifth year after death (often called the “5-year rule”).

Waiting five years is the longest allowed, and in many cases the executor might withdraw the funds even sooner to settle the estate. If the owner had already begun taking RMDs, the IRS allows distributions to continue over what would have been the owner’s remaining life expectancy, which might extend the payout slightly.

However, in practice many plans and executors choose to cash out the account quickly rather than stretch it. Either way, an estate beneficiary scenario means the tax deferral is cut short compared to naming a real person as beneficiary.

When a 401(k) is paid to an estate, the funds often land in an estate or trust bank account and are then distributed to the heirs according to the will. From a tax perspective, any distribution from the 401(k) becomes taxable income in the year it’s taken out.

But here’s the catch: if the estate retains those funds (instead of passing them directly to beneficiaries right away), that income will be taxed under the trust and estate income tax rates, which reach the top tax brackets at very low levels of income.

For example, in 2025 an estate or trust hits the highest 37% federal tax rate on income over roughly $14,000 – a threshold individual filers don’t reach until hundreds of thousands of dollars of income. This means if an estate receives a large 401(k) distribution and holds onto it, a big chunk could be lost to taxes in short order.

To avoid those exorbitant taxes, estate executors typically aim to distribute the 401(k) funds to the rightful heirs as soon as is practical.

When the estate passes the money to the beneficiaries, that distribution carries out the taxable income to those individuals. In other words, the heirs will report that income on their own tax returns, usually at much lower tax rates than the estate would have paid.

The end result is similar to a non-spouse inheriting directly, except everything likely happens on a faster timeline (often within 5 years or less).

The heirs pay the income tax due on the distributions they receive, and no early withdrawal penalties apply (death distributions are penalty-free).

One additional consideration: the value of the 401(k) is included in the decedent’s estate for estate tax purposes. While federal estate tax won’t matter unless the estate is very large (beyond the multi-million-dollar exemption), some states have lower estate tax thresholds or even separate inheritance taxes that could apply.

Those taxes would be on top of the income taxes from distributions, so careful planning is key if this scenario is a possibility.

💡 Note: Naming your estate as the beneficiary of your 401(k) is usually not recommended because of these accelerated tax consequences.

To maximize tax deferral and ease of transfer, it’s better to name individual beneficiaries (or a properly structured trust) on the account.

That way, your heirs can potentially use the more favorable 10-year rule or other stretch options rather than being stuck with a 5-year deadline and high estate-level taxes.

📜 Trust as 401(k) Beneficiary: Complex Rules and Tax Traps

Trusts are often named as beneficiaries for 401(k) accounts when the account owner wants to control or protect how the money is used after their death.

For example, a trust might be set up to manage the 401(k) funds for young children until they reach a certain age, or to provide for a loved one with special needs without jeopardizing benefits.

While trusts can be very useful estate planning tools, the tax rules for inherited 401(k)s with trust beneficiaries are more complex and can be less favorable than if an individual inherits directly.

The IRS divides trusts into two broad categories in this context: “see-through” (look-through) trusts, which meet certain criteria to be treated as identifiable beneficiaries, and other trusts that don’t qualify.

If a trust qualifies as a see-through trust (meaning the trust is irrevocable or becomes irrevocable at death, has identifiable human beneficiaries, and provides the required documentation to the plan), then the tax rules “look through” the trust to the underlying beneficiaries.

In plain English, the IRS will treat the 401(k) as if it were left directly to the individual people named as beneficiaries of the trust.

Those individuals can then use the standard post-death rules: most will fall under the 10-year rule, while any who qualify as eligible designated beneficiaries could use life-expectancy-based withdrawals.

The trust is essentially a legal wrapper, but for the timing of distributions it gets similar treatment to an actual person.

However, even if the withdrawal timeline is the same as it would be for an individual, the presence of the trust adds an extra layer of taxation.

When the 401(k) pays distributions into the trust, who ultimately pays the income tax on those withdrawals depends on whether the trust immediately passes the money out to beneficiaries or holds it.

Some trusts are designed as conduit trusts, meaning they automatically distribute any retirement account withdrawals directly to the trust’s beneficiaries.

In that case, the beneficiaries receive the money and pay the income tax themselves, just as if they had inherited the account outright.

Other trusts are accumulation trusts, which can retain the withdrawals inside the trust instead of paying them out right away. If the trust accumulates the income, the trust itself must pay the income tax (at those high trust tax rates) on any amounts not passed through to beneficiaries by year-end.

This can lead to a big tax bill within the trust if, for instance, the trustee holds onto a large distribution for future use instead of giving it to the beneficiary immediately.

A trust that doesn’t meet the IRS criteria for a look-through (for example, perhaps it includes a charity as a beneficiary or fails to properly identify all beneficiaries) gets the worst tax treatment. In that scenario, the 401(k) is treated as having no designated beneficiary — just like if it were left to an estate.

That triggers the same accelerated payout rules we discussed for estates (the 5-year rule if the owner died before RMDs began, or using the owner’s remaining life expectancy if RMDs had started).

Either way, the tax deferral is much shorter than 10 years, and the distributions to the trust would be taxed at those high trust tax brackets unless promptly passed out to individual beneficiaries.

Given these complexities, if you plan to name a trust as your 401(k) beneficiary, it’s crucial to work with an estate planning attorney to draft the trust properly and understand the tax implications.

From the beneficiary’s perspective, if you inherit a 401(k) via a trust, be aware that the timing of distributions might not be under your control — it will depend on the trust’s terms — and that taxes might be handled at the trust level if the money isn’t immediately distributed to you.

Whenever possible, trustees often try to distribute retirement funds out to the actual people beneficiaries to take advantage of lower individual tax rates (unless there’s a compelling reason to keep the money in the trust).

As with estate scenarios, any withdrawals due to death are not subject to the 10% early withdrawal penalty, but the overarching issue with trusts is balancing control with taxation.

💡 Note: Trusts can provide control and protection for inherited 401(k) assets, but they require careful planning.

To minimize tax surprises, ensure the trust is set up to qualify as a see-through trust and consider using conduit provisions so that withdrawals go directly to beneficiaries when possible.

This way, you can achieve the trust’s goals without inadvertently handing an outsized portion to Uncle Sam in taxes.

Impact of the SECURE Act and Recent Tax Law Changes

At the end of 2019, Congress passed the SECURE Act (Setting Every Community Up for Retirement Enhancement Act), which brought the most significant changes to inherited retirement accounts in decades.

If you inherited a 401(k) before 2020, you may have been allowed to “stretch” distributions over your lifetime, taking relatively small RMDs each year and keeping the tax-deferred account growing for potentially many years.

However, for anyone inheriting in 2020 or later (with a few exceptions we discussed), the SECURE Act replaced the stretch option with the 10-year rule for most beneficiaries.

This means a much faster drawdown schedule and, consequently, the IRS collects taxes sooner.

The SECURE Act’s changes were a game-changer: no more multi-decade tax deferral for most non-spouse heirs. Instead, if you’re a non-spouse beneficiary, you generally have to empty the account within ten years.

Spouses were largely unaffected by this particular rule (they still have the rollover option and other flexibilities), but the law did raise the age at which one must start RMDs from retirement accounts (from 70½ to 72, and later laws pushed it to 73).

That higher RMD age indirectly affects inherited accounts because if an owner dies later, they might have already begun RMDs, which could influence a beneficiary’s withdrawal requirements.

In 2022, a follow-up law often called SECURE Act 2.0 further tweaked the rules. It raised the RMD beginning age again (to 73 starting in 2023, and eventually 75 later in the decade) and notably eliminated RMDs for Roth 401(k) accounts during the original owner’s lifetime (effective 2024).

For beneficiaries, this means if you inherit a Roth 401(k) from someone who dies in 2024 or later, the original owner wasn’t forced to take RMDs, but you as a non-spouse beneficiary still have the 10-year rule to empty the account.

SECURE 2.0 also reduced the penalty for missing an RMD. Previously, failing to take a required withdrawal would cost you a hefty 50% excise tax on the amount not withdrawn; now that penalty is 25% (and can drop to 10% if you quickly correct the mistake).

This change is important in case a beneficiary accidentally misses a required withdrawal deadline, since the financial punishment for an oversight is now somewhat less draconian.

These law changes underscore the importance of staying up-to-date. Many estate plans written prior to 2020 assumed the stretch was available, and trusts that were designed to trickle out RMDs over decades suddenly faced the 10-year rule, causing potential tax headaches.

The IRS has been issuing guidance to help interpret the new rules (for example, clarifying whether beneficiaries need to take annual distributions within the 10-year window if the original owner was already taking RMDs – a point that caused some confusion).

As of now, the conservative approach for non-spouse heirs is to plan on depleting the account by the end of the tenth year, and if the decedent was already taking RMDs, consider taking at least small distributions each year to be safe.

Whenever tax laws change, it’s wise to consult with a financial advisor or tax professional to ensure you’re complying with the latest requirements and making the most tax-efficient decisions.

Real-World Examples: How Inherited 401(k) Taxes Can Vary

Sometimes it’s easiest to understand the tax impact through examples. Below are a couple of scenarios illustrating how different choices and circumstances can affect the taxes a beneficiary might owe on an inherited 401(k).

Scenario: Non-Spouse Beneficiary Inheriting a $200,000 Traditional 401(k)**
(Assume the beneficiary has about $60,000 of other annual income; federal tax only, 2023 rates.)

In the above scenario, taking the $200,000 all at once results in a much higher tax hit in that year, whereas spreading the withdrawals over a decade keeps the beneficiary in a lower tax bracket each year.

By spreading out the income, the beneficiary in this example saves around $10,000 in federal taxes overall compared to doing a lump sum. On the other hand, if they wait and take nothing until the final year, they end up in the same situation as the lump sum—facing a big tax bill in that year.

This illustrates why many non-spouse beneficiaries choose to take distributions gradually under the 10-year rule rather than procrastinating until the last moment or cashing out immediately.

For contrast, consider a beneficiary who inherits a Roth 401(k) worth $100,000. Assume the original owner had contributed to the Roth 401(k) for more than five years.

If the beneficiary withdraws the entire $100,000 the day after inheriting, they would owe $0 in income taxes on that withdrawal because it’s Roth money.

Alternatively, the beneficiary could let the Roth account sit and grow for up to 10 years.

Because Roth 401(k)s are not subject to required minimum distributions during the original owner’s lifetime, the beneficiary can wait until the end of the tenth year to take it all out. Any investment growth over those 10 years would also come out tax-free.

In this scenario, the beneficiary’s strategy might be the opposite of a traditional 401(k): there’s no tax reason to take incremental withdrawals, and waiting until the end to withdraw can maximize the tax-free growth.

The only catch is remembering to withdraw all the funds by the 10-year deadline to avoid any penalties for missing that window.

State Tax Considerations for Inherited 401(k)s

So far, we’ve focused on federal tax rules, which apply to everyone. But your state can also take a bite out of your inherited 401(k) in different ways, and these rules vary widely depending on where you and the decedent lived.

• State Income Tax: Most states tax retirement account withdrawals as ordinary income, just like the IRS. If you live in a state with an income tax, you should expect that any taxable distributions you take from an inherited 401(k) will be included in your state taxable income.

• There are a few nuances: Some states offer exemptions or exclusions for certain retirement income (often for taxpayers above a certain age), which might reduce the state tax on an inherited 401(k) withdrawal.

• On the other hand, if you live in a state with no income tax (such as Florida, Texas, or Nevada), you won’t owe state income tax on your inherited 401(k) distributions at all. Always check your state’s rules or consult a local tax advisor, because a $50,000 withdrawal could be tax-free in one state and taxed at 5% or more in another.

• State Inheritance Tax: A handful of states impose a separate inheritance tax on people who receive assets from a deceased person. This tax is distinct from income tax. States like Pennsylvania, Nebraska, Kentucky, Maryland, and a few others may charge an inheritance tax on the value of a 401(k) that you inherit, depending on your relationship to the decedent.

• For example, Pennsylvania imposes a 4.5% inheritance tax on assets left to direct descendants (children and grandchildren), 0% if left to a spouse, and 15% if left to an unrelated heir. In these states, even if the distribution itself is taxed as income federally, you might also owe a percentage of the inherited account to the state as a one-time inheritance tax.

• The inheritance tax is typically due relatively soon after death, and it’s based on the account’s value (or the amount distributed) around the time of death.

• State Estate Tax: Separate from inheritance tax (which is paid by beneficiaries), some states have an estate tax that is paid out of the decedent’s estate.

• The estate tax won’t be directly billed to you as the beneficiary, but if the estate (including the 401(k) balance) is above a certain threshold, the estate might have to pay state estate tax before distributing assets. States like Massachusetts, Oregon, and Illinois have estate tax thresholds far lower than the federal threshold (often in the $1–2 million range).

• If an inherited 401(k) pushes an estate over that threshold, a portion of that account’s value could effectively go to the state via estate taxes. From your perspective, this means you might receive a little less because the estate had to pay that tax before you got your share.

Keep in mind that state tax laws can change, and specifics may depend on the decedent’s residency, the beneficiary’s residency, and the type of account. One positive note: states generally do not tax Roth 401(k) or Roth IRA withdrawals as income (since those follow the federal tax-free treatment for qualified distributions).

However, if your state has an inheritance tax, the full value of a Roth 401(k) could still be subject to that tax even though the withdrawals are income-tax-free.

The bottom line is that after sorting out the federal taxes, you should also consider your state’s rules — they can influence how much of the inherited 401(k) you actually get to keep.

FAQ

Q: Do beneficiaries pay income tax on inherited 401(k) money?
Yes – distributions from an inherited traditional 401(k) are subject to income tax at your rates. (Inherited Roth 401(k) withdrawals are tax-free, provided the account was held at least 5 years.)

Q: Does a spouse pay taxes on an inherited 401(k)?
A surviving spouse pays no tax immediately. They can roll the 401(k) into their own retirement account tax-free. Taxes only apply later when the spouse withdraws money (if it’s a traditional account).

Q: Are inherited 401(k) withdrawals penalty-free?
Yes. Distributions taken by a beneficiary after the original owner’s death are exempt from the 10% early withdrawal penalty, regardless of the beneficiary’s age.

Q: What is the 10-year rule for inherited 401(k)s?
Most non-spouse beneficiaries must withdraw the entire balance by the end of the tenth year following the account owner’s death. You can choose when to withdraw during that period, but nothing can remain after Year 10.

Q: Do I have to pay state taxes on an inherited 401(k)?
It depends on your state. Many states tax traditional 401(k) distributions as income. A few also impose inheritance or estate taxes that can affect the inheritance. Check your state’s specific tax laws.

Q: Can I roll over an inherited 401(k) into my own IRA?
If you’re the spouse, yes (you can do a spousal rollover. Non-spouse beneficiaries cannot roll an inherited 401(k) into their own IRA, but they can transfer it to an inherited IRA.

Q: Are inherited 401(k) distributions considered income?
Yes. If you inherit a traditional 401(k), any amount you withdraw counts as part of your taxable income in that year. (Qualified Roth 401(k) inherited withdrawals are not included in income.)

Q: Do inherited 401(k)s have required minimum distributions?
Non-spouse heirs don’t have to take annual RMDs — they must withdraw the entire account by the end of the 10th year. Spouses who assume the account treat it as their own (normal RMD rules).

Q: Can I avoid paying taxes on an inherited 401(k)?
Not if it’s a traditional account — those pretax dollars will be taxed when withdrawn. You can only soften the impact by spreading distributions over years. (Roth 401(k) inheritances can be withdrawn tax-free.)

Q: Is a 401(k) inheritance taxable to the estate of the deceased?
Generally, the 401(k)’s value counts in the decedent’s estate, but estate tax only applies if the total estate exceeds the tax threshold. The beneficiary pays income tax on withdrawals when they take them.