Inherited IRA and 401(k) rules

The SECURE Act changed many post-2019 beneficiary rules. Do not assume every beneficiary uses the same ten-year rule. The date of death, whether the owner died before or after their required beginning date, the beneficiary category, and the plan terms matter. Employer plans may limit available options.

Many designated beneficiaries who are not eligible designated beneficiaries must empty the account by the end of the tenth year after death. For deaths on or after the required beginning date, annual beneficiary RMDs generally also apply in years one through nine. For deaths before that date, the ten-year rule generally does not require annual distributions in those intervening years.

Transition penalty relief for certain earlier years is not a permanent exemption. Have the custodian and CPA check the current Publication 590-B rules, the owner's remaining year-of-death RMD, and the beneficiary's actual calendar. This page does not calculate a distribution.

Eligible designated beneficiaries include a surviving spouse, the owner's minor child, a disabled or chronically ill individual, and an individual not more than ten years younger than the owner, subject to definitions and conditions assessed under the applicable rules. This minor-child category is the owner's child, not every minor relative. Life-expectancy methods may apply. Publication 590-B explains that the ten-year period applies to the remaining balance when the owner's minor child reaches the applicable age of majority; confirm the governing definitions rather than using state-law adulthood assumptions.

An estate, charity, or a trust that does not qualify for look-through treatment may face different rules, including a five-year rule or the owner's remaining life expectancy. Trust beneficiaries need specialized review.

Traditional account withdrawals are generally taxable except for applicable after-tax basis. Roth beneficiaries are still subject to distribution rules. The Roth owner's death is generally treated as before the required beginning date. Inherited Roth IRA distributions are excluded from taxable income when qualified, including satisfaction of the five-tax-year period measured from the original owner's first Roth IRA contribution year. If that period is not met, earnings may be taxable even though the death exception generally removes the early-distribution penalty. Do not assume inherited Roth 401(k) plan terms or every distribution are identical.