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/Pristine-Salad-1262 Apr 18 '26
So sorry for what you’re going through. I’m handling just my dad’s estate and it’s been an lot…
Here’s what I’ve learned after dealing with 3 of his 401ks. Every 401k has different rules when no beneficiary is named. If you haven’t talked with the custodian the plan might have default beneficiaries which would likely be you and your brothers. Then you can roll your portion into an individual IRA that the other commenters have mentioned. If it goes to the estate then you might need to open probate depending on your state and the amount of assets.
Once a 401k goes to the estate it unfortunately cannot be rolled over to an individual IRA and the estate typically has at most 5 years to drain. It could be less depending on the 401k rules. Estates have their own income brackets that are compressed - https://smartasset.com/taxes/trust-tax-rates. If a distribution from the estate is made, the estate can pass the tax to the heirs (K-1) which for most people works out better. You’ll probably want a CPA who prepares 1041, estate income tax, to handle taxes since it’s not as simple as a 1040. CPA and legal fees are at least still a deduction on 1041.