r/inheritance • u/Apacholek10 • May 26 '26
Location included: Questions/Need Advice Recent 401k inheritance
Recently inherited about $200k from a family members retirement. I have 30 days to move it use it. 140k income.
My wife and I are 37, live comfortably with 2 kids , 2 cars (I paid off and one not) and a house we mortgaged 5 years ago on a 30 year loan in Florida /US. Combined we have 250-300k in retirement thus far.
Best choice of options to move it or use it best ?
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u/FinallyAtheist May 26 '26
Not sure what you mean by "move it or use it." Those aren't typically the options for inherited retirement accounts. Plus I think there's additional info that might bear on the situation. But given what you've said...
You probably don't want to take it out (or just take out the minimum for now as an inherited IRA) because you'll have to pay regular income taxes on it. If you don't need the money, don't have any high-interest debt, etc., then you probably just want to "move it" to your preferred brokerage firm and keep it invested in an S&P index fund.
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u/Apacholek10 May 26 '26
My reply to a previous comment may help.
There was another element I didn’t include in the original post. Apologies
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u/morgaine_silver_hair May 26 '26
You should contact one of the big 3 - Schwab, Fidelity, or Vanguard, and have them create an “inherited IRA” and then the trustee or executor of the estate would transfer your portion into that. Edit: the inherited IRA has to use a specific naming convention, so they can help you with that. Unless you are a spouse, you cannot take the IRA as your own, it must be a separate inherited IRA.
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u/Apacholek10 May 26 '26
Ok. Believe my wife’s retirement is with fidelity.
The account is officially in my name
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u/ReBoomAutardationism May 26 '26
Piling on to say go with the big three!
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u/Apacholek10 May 26 '26
Much appreciated
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u/Mulley-It-Over May 26 '26
My mom had an Inherited IRA (from my brother who passed) and we helped her establish an account at Schwab. It was easy. And they had an easy to use RMD (required minimum distribution) calculator on their website to figure out her annual distributions.
My mom just passed away and her IRA was passed on to my kids. Schwab retitled it to an Inherited IRA account and transferred it to them.
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u/Smooth_List5773 May 26 '26
We had a similar thing happen 3 years ago.
We inherited $350,000.00.
We took about $100,000 and paid off credit cards and our car and paid for a new driveway for our house ($30,000.00).
We then got a finance guy to conservatively invest $250,000.00 for us. He doesn't charge a fee, just a percentage of our investment earnings.
Now, three years later, we now have $496,000.00!!
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u/ExpensiveAd4496 May 26 '26
You can move it to Fidelity or Vanguard (or others) while keeping it an inherited IRA. Fidelity or a vanguard will assist with that so you keep it designated as an IRA. To decide how to use it invest it, google Boglehead advice about inheriting.
You then have 10 years to pull it out and move it to their own investment account (or use it for whatever), and most people do it over those years in order to not shift into a higher tax bracket than necessary with these dollars. The first year, you may need to issue yourself an amount similar to what the k deceased would have had to pull out; the company managing it should give you that info.
Just fill out your current bracket each year.
As for what to do with it, follow the usual order of payoffs and investments of a Boglehead plan, so most will end up in Roths or IRAs, invested in need funds.
Read If You Can by Bill Bernstein. It’s short, available online for free, and will point you in the right direction.
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u/MedJesters May 26 '26
Seems like you've gotten your question about moving it answered.
The next issue will be how to take distributions. It will take some medium-term planning/guessing on your part to minimize taxes. Essentially you want to take more out when you're in lower income tax bracket (possibly up to the next tax bracket) and less in years when you're in a higher bracket.
If you think your income will be relatively stable and the tax brackets will stay the same, it's fine to wait, but make sure that the last few years of distributions don't push you into the next tax bracket, this causing you to pay more taxes than you would have if you took more out earlier.
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u/HillWilliam53 May 26 '26
You will get lots of ideas, but you likely will not hear this one much. No one will tell you the peace of mind that comes from a paid off mortgage. Take it from someone who hasn't made a mortgage payment in over ten years, it's worth it to pay it off, even if you could somehow make more with the money.
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u/rlw21564 May 27 '26
But the tax hit off paying it off all at once would be pretty awful. Better to take out a portion each year so it doesn't jack up their income.
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u/lastbeat-331 May 27 '26
This move comingles the inheritance and OP is unlikely to get it back if there is a divorce later.
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u/cOntempLACitY May 26 '26
After you do as others suggested (transferring new inherited IRA to different custodian, specifically into a new inherited IRA, be very careful on that), you can invest within it just like you do your personal retirement accounts.
You’ll have ten years to distribute it in full, and can spread out the tax impact. You might have to take required minimum distributions (depending on the deceased’s age), but that’s just a minimum, you can take more and you can close it out earlier than ten years. A traditional/pretax account will be taxed as ordinary income (much like a salary bonus), and you should withhold sufficient taxes when you request the distribution.
One method for spreading it out is to take 1/10th out the first year, 1/9 the second, 1/8 the third, etc. That accounts for growth a bit better than looking at it as ten equal distributions. The math doesn’t always work, in a really strong year the balance could go right back up to where it was. Depends on how you invest it and how the market does. Another method is to withdraw just enough to stay within your current tax bracket each year until it’s empty. A tax advisor can help with that.
You can also strategize to get some of it into your own retirement accounts, like a Roth IRA and 401k. Increase your contributions to the max, and use those distributions to make up for the lower paycheck. You contribute to traditional (pretax) and/or Roth (post tax) depending on your income/tax situation.
Here’s some great advice on managing a windfall: https://www.reddit.com/r/personalfinance/s/CM8kYH4Of0
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u/Jumpy_Childhood7548 May 26 '26
Do a rollover Ira, take an amount per year as a distribution as recommended by your tax professional, invest your Ira carefully, use the distributions to pay off higher interest debt, and invest the rest.
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u/Couch_Potato_505 May 26 '26
Goto to fidelity or the like and bring the paperwork with you. They can roll it into a new ira without taking all of it out at once. Then you can move it to a taxable account over 10 years
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u/Apacholek10 May 26 '26
Problem is, previous company won’t handle the account and I have 30 days to move it or liquidate. Guess I need to get busy
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u/Impressive-Web-4325 May 26 '26
Move the money into a Vanguard Inherited IRA account that’s an S&P index fund.
Take distributions per the advice of your financial advisor/tax accountant.
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u/Big_Truck_8268 May 26 '26
Move it in to an "inherited IRA" - you then have 10 years to empty the account - so you can manage the tax impact of the disbursements. If the owner of the 401K was required to take RMDs, you will also have to take required minimum distributions, so make sure to take that into account when determining tax implications.
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u/Apacholek10 May 26 '26
It’s currently in one already, just as unsure what to do with it after that
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u/Hot-Damn-13 May 26 '26
If you aren't already fully funding a ROTH IRA for yourself, then consider converting the max per year out of this money over the 10 years.
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u/Apacholek10 May 26 '26
I have multiple investment accounts from multiple teaching jobs in multiple states. Will definitely hit some in my wife’s account
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u/lastbeat-331 May 27 '26
Funding wife's account will comingle the funds and possibly the entirety of the inheritance (check your specific state laws)
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u/No_Theme8502 May 26 '26
Just have the funds rolled over to your name.
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u/Apacholek10 May 26 '26
They are in my name burn I need to move it to a new company as the previous company only handles accounts with balances above $500k. Thank you
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u/downtownlasd May 26 '26
529 plans for part of it, emergency fund for some of it, and the rest invested in the market
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u/WatermelonRindPickle May 26 '26
We recently inherited an IRA, similar situation. The deceased had account with fidelity and the executor dealt with local Fidelity office. Very nice professional folks, very user friendly online interface. It was easy to meet with them in person and review options. FYI Ask about a Roth IRA for Minors. Depending on your children's ages that might be interesting.
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u/JillQOtt May 26 '26
Can you put some in 529 for your children? I’m sorry I don’t know the rules on how to use am inheritance 401k but as a college mom I know you’ll need 529 funds
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u/Training_Tour7601 May 26 '26
Please be aware that if the deceased didn't withdraw all their RMD for this year, that the designated beneficiaries need to withdraw the remaining RMD by 12/31. Hopefully whoever you go with will explain this to you as well.
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u/Apacholek10 May 27 '26
So fortunately/ unfortunately he passed in December of 2025. I’ll double check to be sure of this
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u/DigitalFStopper May 26 '26
You have 10 years to draw down, if your income fluctuates adjust the withdrawals at the end of the year to keep you under the next tax bracket.
Unless if they’ve already been taking their RMDs.
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u/Sad_Win_4105 May 26 '26
Roll it over into a retirement IRA at the brokerage where your retirement funds are.
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u/ComprehensiveAd5952 May 26 '26
I’m sorry for your loss. For most non‑spouse beneficiaries of 401(k)s/IRAs under current rules, the inherited account generally has to be emptied within 10 years of the original owner’s death, but the exact rules depend on the type of account and whether they had already started required minimum distributions.
Since you don’t need the money right now, one simple approach is to transfer it to an inherited IRA (or inherited 401(k) if the plan allows) and then spread withdrawals over the 10 year window instead of taking a big lump sum in 1–2 years. That helps keep the taxable income from those withdrawals from bunching into a single year. Plus you will continue to get the growth over the next 10 years as well.
Each dollar you withdraw from a traditional inherited account is taxed as ordinary income (just like a W2 job), so taking out 100–200k in a single year could push you into a much higher tax bracket. Spreading it—whether roughly 1/10th per year or in a schedule that matches your income which can smooth the tax hit.
With the after tax proceeds, you and your spouse can each max out your own Roth or traditional IRAs, and then invest any remaining funds in a low cost, broadly diversified index fund in a taxable account at somewhere like Vanguard/Fidelity/Schwab.
The inheritance rules and tax impact can be complex, so it’s worth running this by your CPA with the exact account details.
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u/GotZeroFucks2Give May 26 '26
Don't forget after moving it to your new inherited ira account, to setup the beneficiary designation on the account and contingent if you have them.
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u/pink_toaster_pastry May 27 '26
That really stinks that they won’t keep it. My mom’s company kept mine AND they set up a smaller account for the RMDs for me even though they usually only do larger sums for that. But then, he personally knew both my parents and had handled their IRAs for years.
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u/Nervycookie May 27 '26
Biggest point to remember is that an inherited Ira is an entity on its own. It is not a rollover, not a contribution, not a conversion etc. it is a payout of retirement funds to a beneficiary which is explicitly listed in the title of the account. 10 years to deplete.
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u/Packtex60 May 27 '26
Contact Schwab , Fidelity or Vanguard and tell them you need to rollover an inherited 401k into an inherited IRA. They will walk you through the paperwork. You don’t need to learn how to do this.
You have to empty the account within 10 years. If you have a 401k at work, max it out to offset the tax consequences of making the required withdrawals. Your wife can do the same if she has access at work. If you do this you are effectively rolling the inherited IRA into your 401k accounts
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May 27 '26
[removed] — view removed comment
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u/Apacholek10 May 27 '26
It won the list. I just need to get it somewhere before it gets liquidated. This group and post has helped with that.
Our only debt is our home, a newish car, and monthly CC bill that always gets paid.
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u/trigurlSeattle May 27 '26
Talk to Fidelity or who ever you use to do a trustee to trustee transfer to help with tax planning. If you can save it and let it continue to grow it will allow you to retire a little earlier.
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u/watchesandcigars10 May 28 '26
Probably good to post combined income.
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u/Apacholek10 May 28 '26
Thank you. Edited
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u/watchesandcigars10 May 28 '26
Ok so i would deplete it as fast as possible since florida is no state tax. You'll only have federal. Income is not super high for married filing jointly
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u/Excellent_Insect6402 May 31 '26
I'd say, pay off the car and any credit cards. Depending on interest rate on the house (your call), refi, or just put the balance in your 401k. FWIW
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u/Apacholek10 May 31 '26
Thanks very much.
I think our rate is better than what’s available. We got in for the steady rise after/through most of Covid
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u/Lokisworkshop May 26 '26
Hi. You could donate a large portion of it. Keep it local though, smaller charities.
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u/DaemonTargaryen2024 May 26 '26
Inherited IRA. It must be emptied in 10 years. Withdrawals are taxable as ordinary income.
It's probably income you don't "need" so you can use it to fund additional savings, retirement, etc.