Be aware of the tax implications that come with inheriting a 401(k). You will have to pay income taxes on any money received.
If you are the named beneficiary of a 401(k) plan and that person dies, you should be able to receive the money quickly, before probate is completed. You will have to pay income taxes on any money received, and you may move to a higher income tax bracket depending on the amount. The money is not subject to the 10% early withdrawal penalty even if you are under age 59 ½.
If you are the spouse, you can roll the money into your own IRA or a new IRA without paying taxes on it. Be sure the company makes a direct rollover to your IRA account; if they pay you directly, they will have to withhold 20% in taxes.
Non-spouse beneficiaries can roll over their inherited 401(k) to a special IRA known as an “inherited IRA” and take distributions throughout their lifetime, significantly reducing their tax bill.
Look at the 401(k) plan document or summary plan description to see what rules and restrictions apply. In most cases, you can take out the money as one lump-sum distribution. Or, you may be allowed to receive payments over a period of years. It’s best to consult a tax professional who can advise you on ways to minimize your tax bill. *