Inheriting a 401(k) From a Parent: Options, Deadlines and Taxes

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

If you inherit a 401(k) from a parent, you are a non-spouse beneficiary, and for most adult children the whole account must be withdrawn by December 31 of the 10th year after the year your parent died. Every dollar you take out of a traditional 401(k) is taxed as ordinary income in the year you take it, but there is no 10% early withdrawal penalty, whatever your age. If your parent had already reached the date their own required minimum distributions had to begin, you also have to take a withdrawal every year in between.

For a California or Washington family already earning $750,000 or more, the question is less “can I access it” and more “in which years do I want this income to land.” This guide covers the decisions in the order you will face them.

Who has to follow the 10-year rule

For deaths after 2019, the IRS splits beneficiaries into two groups. Eligible designated beneficiaries can stretch withdrawals over their life expectancy: a surviving spouse, a minor child of the account owner, a disabled or chronically ill person, or someone not more than 10 years younger than the owner. Everyone else who is named as a beneficiary follows the 10-year rule.

An adult child in their 30s or 40s inheriting from a parent in their 70s or 80s is almost always in the second group. The deadline is set by the year of death, not the date you receive the money. If your mother died in March 2026, the account must be empty by December 31, 2036.

When annual withdrawals are also required

The second question is whether your parent had reached their required beginning date, the date their own required minimum distributions had to start. Under current law that is April 1 of the year after the parent turns 73. Older parents had an earlier date, based on age 70½ or 72 depending on when they were born (IRS Pub 590-B), so a parent who died in their late 70s or 80s had almost always passed it. A parent still working for the plan sponsor (and not a 5% owner) can usually delay it while employed (IRS RMD FAQs).

• Parent died before the required beginning date: no set yearly amount. You can take any amount in any year, as long as the account is empty by the end of year 10.
• Parent died on or after the required beginning date: you must take an annual RMD in years 1 through 9, based on your own life expectancy, and empty the account in year 10. The IRS waived the penalty for missed annual amounts from 2021 through 2024 and said the final regulations apply from 2025 (Notice 2024-35). From 2025 on, the annual amounts are enforced.

Also check whether your parent took their own RMD for the year they died. If not, the beneficiary has to take it. A missed RMD carries an excise tax of 25% of the shortfall, cut to 10% if it is corrected within two years (IRS RMD FAQs).

Your three options for an inherited 401(k)

The plan document controls what you can do while the money is inside the 401(k). As the IRS puts it, for a qualified plan “the plan document establishes the distribution options available,” so start with the plan administrator’s beneficiary claim packet. Some plans allow the full 10 years in the plan. Others pay out faster.

The transfer must be direct. IRS Publication 575 says a non-spouse beneficiary’s rollover “must be a direct trustee-to-trustee transfer” to an IRA set up to receive it, which is then treated as an inherited IRA (Pub 575). Unlike a spouse, you cannot take a check and redeposit it within 60 days. A check made out to you is a taxable distribution.

If the 401(k) has a Roth portion

Designated Roth 401(k) money is also subject to the 10-year rule for beneficiaries. Roth 401(k) owners have no lifetime RMDs, and if the whole account was designated Roth, the final regulations treat the owner as dying before the required beginning date, so there are no annual amounts, only the year-10 deadline (T.D. 10001, IRB 2024-33). When a 401(k) holds both pre-tax and Roth money, the final regulations reserve the rule for how the Roth part is treated, so ask the plan administrator how it will calculate any annual amount. Qualified withdrawals are tax-free, so for many families the sensible default is to leave the Roth dollars invested as long as the rules allow and take them near the end of the 10 years.

How the withdrawals are taxed in California and Washington

Traditional 401(k) withdrawals are ordinary income. At this income level that usually means the 37% federal bracket, which for 2026 starts at $768,700 of taxable income for married couples filing jointly (Rev. Proc. 2025-32). Two taxes high earners worry about do not apply: retirement plan distributions are not net investment income for the 3.8% tax (IRS NIIT Q&A), and they are not wages, so no Medicare tax or CA SDI.

• California: withdrawals are taxed at ordinary state rates. For 2025 (the latest published schedule), the married-joint 10.3% bracket runs from $742,958 to $891,542, 11.3% to $1,485,906, then 12.3%, plus the 1% Behavioral Health Services Tax on taxable income over $1,000,000 (FTB 2025 rate schedules).
• Washington: no state tax on these withdrawals in 2026 or 2027. The capital gains tax exempts retirement accounts (WA DOR). From January 1, 2028, Washington’s new 9.9% income tax applies to individuals and joint filers with AGI over $1,000,000 (WA DOR). How it will treat retirement distributions awaits DOR guidance, but a Washington household near $1 million of AGI has a reason to look at drawing more in 2026 and 2027.

Worked example: a $1.2 million inherited 401(k) in a $950,000 California household

Assumptions, for illustration only: a married couple in San Mateo County, both W-2 (one physician, one biotech director), household income about $950,000 including RSU vests, taxable income $800,000 (assumed the same for federal and California). Two children, ages 4 and 8. One spouse’s father dies in 2026 at 80, after his required beginning date, leaving a $1.2 million traditional 401(k) to that child alone. To keep the math readable: no investment growth, income flat, 2026 federal brackets and 2025 California brackets used for every year.

Spreading saves about $23,400 here, all of it at the state level, because this family is already in the top federal bracket either way. That is the honest point for high earners: smoothing alone is worth a couple of percentage points. The larger levers are elsewhere.

• Lower-income years. A sabbatical, a parental leave, a year between jobs, or a year one spouse steps back is the time to take a larger withdrawal. If taxable income drops to $450,000 for a year, the next $62,450 of withdrawals is taxed at 32% federal and the following $256,250 at 35%, instead of 37% (2026 brackets).
• Years with big RSU vests or a one-time bonus. Take only the required annual amount in those years.
• Tax-deferred growth. Money left in the inherited IRA keeps growing untaxed until withdrawn, which usually favors taking only the required amount early and more later, unless a lower-income year comes first.
• A move. A family that moves from California to Washington would typically owe no state income tax on withdrawals taken after the move and before 2028, subject to California’s residency rules. From 2028, Washington’s tax on AGI over $1,000,000 may apply.

Whatever the plan or IRA custodian withholds is often less than the real federal and California rate on this income, so plan for estimated payments or extra withholding from paychecks.

What to do in the first 90 days

1. Get several certified death certificates and call the plan administrator. Ask for the beneficiary claim forms and the plan’s distribution options for non-spouse beneficiaries.
2. Confirm whether your parent had reached the required beginning date, and whether the year-of-death RMD was taken.
3. Decide whether to disclaim before you touch the money. A qualified disclaimer generally has to be made in writing within 9 months of the death, and you cannot have accepted any of the assets (IRC §2518). The account then goes to the contingent beneficiary on the form, or under the plan’s default rules, often a sibling or your own children. A minor grandchild is not an eligible designated beneficiary, so the 10-year rule still applies, and under the 2026 kiddie tax a child’s unearned income above $2,700, including these withdrawals, is taxed at the parents’ rate.
4. If the plan’s options are restrictive, open an inherited IRA and request a direct transfer. Check the account title the custodian uses (see what a beneficiary account name means).
5. Name a successor beneficiary on the inherited IRA. A successor generally inherits your remaining deadline, not a new 10 years (IRB 2024-33).
6. Write a withdrawal calendar for the 10 years that maps against expected RSU vests, leaves and any planned move.

Keep the inheritance separate if you want it to stay yours

California and Washington are community property states, but property one spouse receives by inheritance is that spouse’s separate property (Cal. Family Code §770; RCW 26.16.010). The inherited IRA is titled to you alone. Once withdrawals land in a joint account and mix with salary, tracing them back can get hard. Many couples are fine with that. If you are not, decide where withdrawals go before the first one.

Common mistakes

• Taking a check from the plan “to move it later.” For a non-spouse beneficiary that is a taxable distribution, not a rollover.
• Assuming the 10-year rule means nothing is due until year 10. If your parent was already taking RMDs, you owe an amount every year.
• Withdrawing everything in the first year to “simplify,” then paying the top California rate plus the 1% surcharge on most of it.
• Leaving withholding at the plan default and getting a large balance due in April.
• Forgetting your own beneficiary forms. Inheriting from a parent is a reminder to check who receives your accounts.

What this means for your own beneficiary designations

Turn the same rules around. If you die while your children are young, they are minor children of the account owner, which makes them eligible designated beneficiaries until they reach the age of majority (21 under the final regulations), after which the 10-year rule starts (IRB 2024-33). A 21-year-old with a seven-figure account and no guidance is the outcome most parents fear. That is why many families name a trust as beneficiary (see naming a trust as beneficiary) and work through the details with an estate attorney (see questions to ask an attorney about inheritance).

The account is only part of it. As Kevin puts it: “Your kids will inherit your money. Will they inherit your judgment?” Write down how you handled your parent’s account: why you chose the withdrawal schedule you did, what you used the money for, and what you would want your children to do in your place. A one-page note in your FamilyKnowledge® System is worth more to them than the balance.

Frequently asked questions

Do I pay the 10% early withdrawal penalty on an inherited 401(k)?

No. Distributions made after the death of the plan participant are an exception to the 10% additional tax, whatever the beneficiary’s age (Pub 575). You still owe regular federal and state income tax on traditional 401(k) money in the year you withdraw it. Roth money is tax-free if the account meets the Roth rules.

Can I move an inherited 401(k) into a Roth IRA?

Publication 575 allows a non-spouse beneficiary’s direct transfer to go into a traditional or Roth inherited IRA. Going into a Roth means the whole pre-tax amount is taxable in that year, which for a top-bracket California household is close to the lump-sum cost in the example above. It can make sense in a low-income year, but it is rarely the default.

What if my siblings and I are all named beneficiaries?

Ask the plan administrator to split the account into separate inherited accounts, one per sibling. Each of you then controls your own timing, investments and taxes, which matters when one sibling is in a 37% bracket and another is not. The 10-year deadline is the same for all of you, set by the year of death.

Next step

Before the first withdrawal, put your expected income for the next 10 years (salary, RSU vests, leaves, a possible move) next to the account’s deadline, and pick the years you will draw. If you want help building that calendar alongside your tax planning and estate plan, our Tax & Wealth Assessment starts there.

This is general education, not individual tax advice. The right move depends on your family’s full picture, including the plan’s own rules.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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