Inherited 401(k) Tax Rules — The 10-Year Rule Explained

Spouse beneficiaries have the most flexibility

Key takeaway

A surviving spouse who inherits a 401(k) can generally roll it into their own IRA or retirement plan, treating it as their own account going forward, or keep it as an inherited account with a different set of distribution timing rules.

Rolling it into your own account means it's subject to your own RMD age and rules going forward, and you can name your own beneficiaries. Keeping it as an inherited account can sometimes make sense if you need penalty-free access before age 59½, since distributions from an inherited account aren't subject to the 10% early withdrawal penalty regardless of your age.

Non-spouse beneficiaries: the 10-year rule

For most non-spouse beneficiaries inheriting after 2019, the SECURE Act eliminated the old "stretch IRA/401(k)" approach (which allowed distributions over the beneficiary's own life expectancy) and replaced it with a requirement to fully empty the account by December 31 of the 10th year following the year of the original owner's death.

A significant wrinkle from final IRS regulations: if the original account owner had already started taking RMDs before death, most non-spouse beneficiaries subject to the 10-year rule must also take annual RMDs during years 1 through 9 of that 10-year window, in addition to fully emptying the account by the end of year 10. If the original owner had not yet started RMDs, the beneficiary generally has flexibility in how they distribute the balance across the 10 years, as long as it's fully out by the deadline.

“Eligible designated beneficiaries” can still stretch

Certain beneficiaries are exempted from the 10-year rule and can still take distributions over their own life expectancy, similar to the old rules. This category generally includes:

A surviving spouse.
A minor child of the account owner (until they reach the age of majority, at which point the 10-year clock begins).
A beneficiary who is disabled or chronically ill, as defined by the tax code.
A beneficiary who is not more than 10 years younger than the original account owner.

All distributions remain taxable income

Regardless of which timing rule applies, distributions from an inherited traditional 401(k) are taxed as ordinary income to the beneficiary in the year received, just as they would have been to the original owner. Distributions from an inherited Roth 401(k) are generally tax-free if the account had met the five-year holding requirement, but the 10-year emptying rule (or life-expectancy rule, for eligible designated beneficiaries) still applies to the timing of withdrawals.

What if you're not a “designated beneficiary” at all?

If the 401(k) is left to an estate, a non-qualifying trust, or a charity rather than to a named individual, a different and generally faster distribution timeline applies — often based on whether the original owner had already begun RMDs. This is a situation where getting professional guidance quickly after a death matters, since inherited-account elections can be time-sensitive and hard to unwind once made.