Inherited 401(k) Rules 2026: Plan vs Inherited IRA, Withholding

What the plan decides, and what only the regulation decides

Most pages on inherited retirement money treat a 401(k) as an IRA with a different name. The payout deadlines are the same, and our inherited IRA 10-year rule page covers the divisors, the 25% penalty and the ladder of yearly RMDs, so we do not repeat them. What differs is who controls the choices. In an IRA the custodian agreement and the beneficiary form govern. In a 401(k) the plan document and the plan administrator are added, and the regulations name several choices that belong to the plan.

Source: 26 CFR 1.401(a)(9)-3, -4, -5, -8 and 1.408-8 (eCFR, read October 26, 2026). The plan column describes what each regulation allows a plan to provide, not what any given plan provides.

Two dates in the table are close for a 2025 death. The beneficiary is fixed as of September 30 of the year after the death, which for a 2025 death was September 30, 2026 (1.401(a)(9)-4(c)(1)); after it, a disclaimer or a full payout of one heir's share no longer changes who counts, and our qualified disclaimer page explains why the nine-month disclaimer window closes first. The disability or chronic illness paperwork for a 2025 death is due to the plan administrator by October 31, 2026.

Spouse or not: your paths out of the plan

The Code treats a surviving spouse as the employee (26 U.S.C. 402(c)(9)) and every other heir as an outsider (26 CFR 1.402(c)-2(j)). That one difference sets the menu.

Source: Publication 575 (2025); 26 CFR 1.401(a)(9)-3, -5, 1.402(c)-2, 1.408-8; 26 U.S.C. 72, 401, 402.

Two cautions sit under the table. First, a spouse who rolls the plan into the spouse's own IRA is then the IRA owner, and a withdrawal before age 59½ from that IRA does not get the death exception that a payment from the plan to a beneficiary gets (our reading of 26 U.S.C. 72(t)(2)(A)(ii), which speaks of payments “made to a beneficiary”); a spouse under 59½ who needs cash should ask a CPA before rolling. The regulation gives the spouse a middle route, rolling to an IRA “as the beneficiary of the deceased employee”, and a spouse who rolls to an IRA in the participant's name can still elect later to treat it as the spouse's own (1.408-8(d)(1)(ii)). Second, if the plan applied the 10-year rule to the spouse, that rule follows the money into an IRA in the participant's name unless the spouse elects life expectancy in the receiving IRA (1.408-8(d)(2)(i), (ii)).

The 20% withholding, and the slice that escapes it

Many readers assume that withholding is a spouse problem and that a non-spouse heir only pays tax on the return. The regulation says otherwise. A distribution to a non-spouse is not an eligible rollover distribution by its own terms, but “An amount that could have been transferred to a beneficiary IRA in accordance with section 402(c)(11), but instead, was paid directly to a non-spouse beneficiary, is treated as an eligible rollover distribution for purposes of section 3405(c).” The result is the sentence quoted in the answer above: 20-percent withholding applies. The distributee cannot opt out of it; only a direct rollover (or, for a non-spouse, the direct transfer) avoids it (31.3405(c)-1 Q&A-2), though by agreement the payer may withhold more (Q&A-3).

The exception that matters is the RMD. Under 1.402(c)-2(j)(3)(i)(A), when a minimum distribution is required for the year, “the amounts distributed during that calendar year are treated as required minimum distributions … to the extent that the total required minimum distribution … for the calendar year has not been satisfied. Accordingly, those amounts are not eligible rollover distributions.” A payment that is not an eligible rollover distribution falls back to the elective rules of 26 U.S.C. 3405(b): 10% is withheld unless the payee elects out (3405(b)(2)). So the order of money inside the plan matters. Our arithmetic, with the same assumptions as the answer above (owner died in 2025 on or after the required beginning date; heir aged 50 in 2026; plan balance $400,000; divisor 36.2):

Source: 26 CFR 1.402(c)-2(j)(2)(i), (iv) and (j)(3)(i)(A); 26 CFR 31.3405(c)-1 Q&A-1 and Q&A-2; 26 U.S.C. 3405(b); Publication 575 (2025). Withholding is a prepayment, not the final tax; the amounts are our arithmetic.

Two limits on what the table proves. The order rule is the regulation's, but we have not seen how your plan's administrator applies it, so ask in writing which slice it treats as the RMD before you request a cash payment. And an RMD taken early in the year does not make the transfer impossible: our reading is that the transfer is the part above the year's RMD. For the general rules of the 20%, the 60-day clock and replacing withheld money, see our 401(k) rollover to IRA page.

The yearly RMD from a plan

The test is the same as in an IRA: if the participant died on or after the required beginning date, an annual RMD is due in years 1 to 9 and the 10-year limit still applies. In a plan three details differ (all in 26 CFR 1.401(a)(9)-5).

• The year of death. “A required minimum distribution is due for the calendar year of the employee's death, and that amount must be distributed during that year to any beneficiary to the extent it has not already been distributed to the employee” (-5(c)(1)). It goes to any beneficiary, and 1.402(c)-2(j)(3)(i)(F) treats the amount as an RMD that cannot be rolled over.
• The balance. The divisor is applied to the balance at the plan's last valuation date in the preceding year, adjusted for later allocations and distributions (-5(b)(1), (b)(2)). A plan that values on a date other than December 31 gives a different number than an IRA would.
• The divisor. For a non-spouse heir it is the greater of the heir's and the participant's remaining life expectancy, both from the Single Life Table, reduced by one each year (-5(d)(1)(ii), (d)(3)). A surviving spouse who is the sole beneficiary has the life expectancy redetermined each year from her age (-5(d)(3)(iv)).

For a first-year RMD on a $400,000 balance, the age of the heir sets the size (our arithmetic; divisors from the Single Life Table in 26 CFR 1.401(a)(9)-9(b)):

Source: 26 CFR 1.401(a)(9)-5(a)(1), (d)(3); Single Life Table, 26 CFR 1.401(a)(9)-9(b). The 40, 50, 57, 62 and 70 rows are the eCFR table values for those ages; the RMD column is our arithmetic.

The RMD for 2026 is due by December 31, 2026. A non-spouse heir of a Roth 401(k), or of a participant who died before the required beginning date, owes no RMD in years 1 to 9 under the 10-year rule (1.401(a)(9)-3(c)(3)); Publication 575 (2025) states the 10-year deadline for a defined contribution plan in its Rule 2. Any amount the heir takes in those years still counts toward the 10-year emptying.

The deadline trap: the last year you can still transfer

This is the point no IRA page needs. In the 10-year rule with a death before the required beginning date, the regulation sorts payments by year. A payment “made before the calendar year that includes the tenth anniversary of the date of the employee's death is eligible for rollover,” but in that last year “the entire amount to which the beneficiary is entitled under the plan must be distributed, and because it is treated as a required minimum distribution, it is not an eligible rollover distribution” (1.402(c)-2(j)(3)(i)(D)). An heir who waits for the last year therefore receives the whole balance as a taxable payment and has nothing left to transfer; because that payment is an RMD, withholding falls under the elective 10% rule rather than the 20% (our reading of 1.402(c)-2(j)(3) and 31.3405(c)-1 Q&A-1). For a death on or after the required beginning date, (j)(3)(i)(F) points to -5(c) for the death year and to -5(d) and (e) for later years; our reading is that the 10th-anniversary year works the same way, because -5(e)(2) then requires the entire interest to be out.

Source: 26 CFR 1.401(a)(9)-3(c)(3), -5(e)(2); 26 CFR 1.402(c)-2(j)(3)(i)(D), (F); 26 U.S.C. 402(c)(11)(A)(iii). The middle column is our arithmetic on those texts; ask the plan administrator for its own cutoff date, because a plan can set an earlier processing deadline.

Why would an heir transfer at all? The payout forms a plan offers may be narrow (we have not seen yours), while an inherited IRA lets the heir choose when to withdraw inside the same 10-year window (our reading). For a participant who died on or after the required beginning date the IRA keeps the yearly RMDs, because 402(c)(11)(A)(iii) applies section 401(a)(9)(B) to the IRA. What the transfer does not do is extend any deadline. Our inherited IRA page covers what happens once the money is there, including the 25% penalty for a missed RMD.

Inherited Roth 401(k)

A designated Roth account has a lifetime-RMD exemption and a death rule of its own. Publication 575 (2025) says that an employee with a designated Roth account is not required “to take distributions from the designated Roth account at any age.” At death, 1.401(a)(9)-3(a)(2) provides that the employee “is treated as having died before his or her required beginning date,” so a non-spouse heir is on the 10-year rule with no RMD before the last year. The same sections keep a designated Roth balance out of the RMD base through the year of death (-5(b)(3)).

Tax-free treatment is a separate test. A “qualified distribution” from a designated Roth account has the meaning in 26 U.S.C. 408A(d)(2)(A), which includes a payment “made to a beneficiary (or to the estate of the individual) on or after the death of the individual”, but a payment made inside the 5-taxable-year period in section 402A(d)(2)(B) is not qualified. The period runs from the first taxable year the participant made a designated Roth contribution to an account under the same plan, or to the earlier account the money was rolled from. Publication 575 allows a direct rollover of a designated Roth account into another designated Roth account or a Roth IRA. We did not find a source that settles which 5-year period an inherited Roth IRA carries after a transfer for a non-spouse heir, so it is marked not verified in the dataset; ask the receiving custodian in writing. For how the 5-year clocks work on a Roth IRA, see our Roth IRA 5-year rules page.

Employer stock and NUA for an heir

If the 401(k) holds shares of the employer's stock, an heir can use the NUA rule, and the death of the participant is one of the four events that make a distribution a lump sum (26 U.S.C. 402(e)(4)(D)(i)(I); Publication 575 lists “Because of the plan participant's death”). A lump sum is the whole balance, paid within one taxable year of the recipient. In a lump-sum distribution that includes employer securities, “there shall be excluded from gross income the net unrealized appreciation” in them (402(e)(4)(B)), and Publication 575 says that an eligible rollover distribution is not subject to the 20% withholding “to the extent it consists of NUA.” Our NUA page covers the election, Form 1099-R box 6 and the holding period; here is only what changes for an heir.

Our arithmetic on an assumed $300,000 of employer stock with $60,000 of plan cost. The NUA is $240,000. If everything is cashed out and taxed at an assumed flat 24%, the tax is $72,000. If the stock is distributed in kind, $60,000 is taxed in the year of the distribution at 24% ($14,400), and the $240,000 is taxed at an assumed 15% when the stock is sold ($36,000), a total of $50,400, or $21,600 less. Real brackets stack, the 15% applies only when the stock is sold, and the stock can fall in the meantime; the point is the direction, not the figure. The 20% withholding falls on the $60,000 taxable part ($12,000) if it is paid to the heir; how a plan collects it on a stock distribution is dealt with in 31.3405(c)-1 Q&A-9, which we did not read in detail.

Three points to check for an heir. The amount excluded as NUA still counts toward the RMD (1.401(a)(9)-5(g)(2)(i)). The step-up in basis at death does not apply to income in respect of a decedent (26 U.S.C. 1014(c)), and we have not opened an IRS ruling that applies that to NUA, so whether any part of the NUA gets a different basis is a question for the plan and a CPA (not verified). And the one-taxable-year test is the heir's, so a payout split across two of the heir's tax years is not a lump sum (402(e)(4)(D)(i)). For why an inherited retirement account does not get the step-up that a house gets, see our tax on inheritance by asset.

Verdict: what to settle with the plan administrator

1. Get the beneficiary form and the plan's death-benefit rules in writing. The plan designation controls, not the will, and the plan decides the available payout forms.
2. Ask which payout rule the plan applies to you. If you are an eligible heir (spouse, minor child, disabled or chronically ill, within 10 years of the participant's age), ask whether the plan applies the 10-year rule to your class, and whether you can still make an election and by what date.
3. Find the date of death against the required beginning date. It decides whether yearly RMDs are due (73 for births in 1951 through 1958, 75 for 1960 or later; 1.401(a)(9)-2(b)(2)).
4. Ask whether the plan will make a direct transfer to an inherited IRA under 402(c)(11), and its last processing date. Use the table above for the calendar year.
5. Ask which slice the plan treats as the RMD, and how it handles withholding on each slice, before you request cash.
6. If there is a Roth account or employer stock, say so in the first letter. Both change the order in which you take money out.

What a reader can do with this

• Run your own numbers. Take the balance at the plan's last valuation date, divide by the Single Life Table figure for your age, and subtract one from the divisor for each later year. The dataset has the divisors used here.
• Ask whether the plan will split the request. The year's RMD in cash and the rest by direct transfer withholds far less than one cash payment (cases 1a and 1b above).
• Write to two people. The plan administrator for the plan's rules and the receiving custodian for the inherited IRA's rules; neither answers for the other.
• Check the state and estate side separately. The federal estate tax and any state inheritance tax are outside these rules; the federal estate tax exemption is a separate question.

The 2026 RMD is due by December 31, 2026, and the penalty for a missed RMD is 25% of the shortfall (see the inherited IRA page). This is analysis of public documents, not investment, legal or tax advice; every case depends on the plan document and the heir's facts, so use a CPA or an attorney for yours.

FAQ

Sources, read and saved on October 26, 2026: 26 CFR 1.401(a)(9)-2, -3, -4, -5, -8 and -9, 1.402(c)-2, 1.408-8 and 31.3405(c)-1 (eCFR; the 1.401(a)(9) sections include T.D. 10001, 89 FR 58886, July 19, 2024); 26 U.S.C. 72, 401, 402, 402A, 408A, 1014 and 3405 (Cornell LII); IRS Publication 575 (2025) and IRS Publication 590-B (2025) (IRS PDFs). Worked examples, the withholding cases, the transfer-year table and the NUA case are our arithmetic. Not verified: whether every plan offers the 402(c)(11) transfer, the 5-year period of an inherited Roth IRA after a transfer, and any basis adjustment for inherited NUA. This is analysis of public documents, not investment, legal or tax advice.