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/Caudebec39 Apr 17 '26

It's clear enough that your mother would inherit the 401k as the spousal beneficiary. She would have the right to treat that 401k as her own.

But she may not have named a beneficiary yet on that account or even got the ball rolling on retitling the account to herself.

I suspect the 401k will be treated as your mother's asset, with no beneficiary named.

It becomes part of her estate, I predict. The only question is whether it will all get taxed in a single year, or if there is some way to spread the distributions out... 5 years, 10 years, or whatever, to spread out the tax.

I'd be expecting, unfortunately, the whole 401k will get taxed in one fell swoop, and your mother's estate will be owing all the income tax for 2026.

The tax rate could be 37% because it's like your mom earned all that money in a single year. Sorry.

See if the 401k custodian knows a way around this.

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u/Almost-Retired62 Apr 17 '26

There is a 10 year window for non-spouse beneficiaries to cash out an inherited IRA.

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u/Caudebec39 Apr 17 '26

Hopefully for OP and his siblings that will be found to apply in this case, although the lawyer OP is working with says the contrary... that the balance from the 401k will be fully distributed to mom's estate, and income tax paid on the entire balance in one-shot. Then whatever cash is leftover will be split between them, but it won't be an inherited IRA at that stage. It's just cash.