I am inheriting my father’s 401k. I do not expect to need his 401k funds until retirement. Would rolling it into my personal 401k be a good idea? Does that have the 20k/year rule?
OR, would you cash out the 401K each month in small payments and pay down mortgage? It is our only debt.
Thanks!
Hi @Elizaberry, thank you for your question and I’m sorry to hear about your loss.
For non-spousal beneficiaries, you unfortunately can’t roll the 401k into your own retirement account. You will need to take distributions from the inherited account by 12/31 of the year following the original owner’s passing. You have 10 years to take all of the distributions from the account. There’s no set amount you need to take each year, it just needs to be all taken by the end of 10 years. Since the money is taxable (assuming it’s a traditional 401k), it is common for people to spread the distributions out over the 10 years.
There can be some exceptions to the above depending on certain circumstances. The rules surrounding inherited 401k’s are complicated and can be confusing. If you haven’t already, it may be worth talking with a financial planner or tax consultant.
If you have the time, sometimes the best thing to do is pause and try and become as informed as possible with all of the (overly) complicated rules (which sounds like it’s exactly what you are doing!). That way you can make decisions that are best for you.
I’m not familiar with the $20K/year rule that you mentioned. What are you referring to there?
I hope this helps. Please keep us posted if there are any other questions.
Shane