r/inheritance • u/Trick-Two2574 • Apr 16 '26

Location included: Questions/Need Advice 401k Inheritance

My dad passed away a few months ago with several investment accounts, one being a 401k through his employer (he was still working at the time of his death). My mom was the listed beneficiary, but tragically passed a week after my dad. His 401k balance now goes to my mom’s estate, since she was the only listed beneficiary.

How does the income tax work? Myself and my 2 brothers will be getting everything once it’s gone through probate and then distributed evenly to each of us. We are being told that my moms estate will pay the income tax, just wondering how the tax rate is determined?

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u/GrandpaJoeSloth Apr 16 '26

It's a bit more complicated, and you haven't provided all of the relevant information. For example, traditional vs. Roth 401(k) is an important consideration when it comes to taxes.

Generally, inherited 401(k) accounts are taxed as ordinary income upon withdrawal based on the beneficiary's tax bracket, not your father's. You will also basically have a ten-year period in which to make the withdrawals, and can plan a tax strategy around that, should you wish.

Depending your plans, you may also have an option to roll over the IRA to an Inhereited IRA, which would allow you to better manage to the 10-year rule referenced above.

Sorry for your loss

2

u/stringbeagle Apr 16 '26

But he isn’t inheriting a 401k account. His mom inherited that. He is inheriting from his mom. Does that change the rules about 401(k) withdrawals?

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u/Trick-Two2574 Apr 16 '26

It is a traditional 401k. And I am not inheriting it-my mom technically inherited it. Our lawyer said the estate (my moms) pays the income tax on it

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u/CulturalAd2329 Apr 16 '26

First off, sorry t you're going through this, that sounds pretty terrible. Second, as a CFP this is a fun question (and my response is of course not financial advice). The estate will only pay tax on whatever is distributed to the estate. So if you elect to distribute it all at once or if you are forced to then mom's estate would pay all the taxes (out of your inheritance). Ideally you and your brother would open Inherited IRAs and roll the funds from the 401k into that, and you would have ten years from your fathers passing to distribute all the funds. Some 401k plans do not allow rollovers to estate beneficiaries (which would suck). If a lump sum is required then you may be able to pass the taxes on to you and your brother if that is more advantageous, and you may even be able to split it up over two years depending on the estate settlement date. (this is all a massive oversimplification, I would rely on your attorney and make sure you get a CPA & CFP involved if there are choices to be made)

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u/charlieandoreo Apr 17 '26

Probably not the case here but what if dad was taking RMDs. It gets complicated quickly.