If you inherited a Roth 401(k), the withdrawal rules that apply to you depend almost entirely on your relationship to the person who died. Surviving spouses have the widest set of options, including rolling the money into their own Roth IRA and skipping required distributions during their lifetime. Most other beneficiaries must empty the account within ten years. Distributions of the original contributions are always tax-free, and earnings are tax-free as long as the account has been open at least five years. Miss a required withdrawal, though, and the IRS charges a 25% excise tax on the shortfall.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
First Move: Get the Money Into an Inherited Roth IRA
Employer plans usually aren’t built to hold accounts for people who don’t work at the company, and the plan document may force a full payout within a short window. Transferring the balance into a dedicated Inherited Roth IRA preserves the tax-free treatment and puts you in control of when the money comes out.
Use a direct trustee-to-trustee transfer. The funds move straight from the plan’s custodian to the new Inherited Roth IRA custodian without touching your bank account, which avoids the 20% federal withholding that applies when a plan distribution is paid to you directly.2Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Non-spouse beneficiaries can’t use the 60-day rollover method at all; a direct transfer is the only route.
Title the new account carefully. It must show the deceased owner’s name, your name as beneficiary, and its inherited status. A common format is “John Smith, Deceased, FBO Jane Smith, Inherited Roth IRA.” There’s no single required wording, but if the account isn’t clearly marked as inherited, the IRS can treat the whole balance as a taxable distribution.
Options If You Are the Surviving Spouse
A surviving spouse can choose from three paths. The right one depends on your age, whether you need access to the money soon, and how long you want it to keep growing tax-free.
Rolling Into Your Own Roth IRA
Rolling the inherited Roth 401(k) into your own Roth IRA is usually the most advantageous move. The funds become yours, not inherited, and Roth IRAs have no required minimum distributions during the original owner’s lifetime.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The money can compound for decades and pass to your own beneficiaries.
One catch: the five-year holding period doesn’t carry over from the Roth 401(k) to a Roth IRA cleanly. If your spouse had the Roth 401(k) for eight years but never opened a Roth IRA, the Roth IRA’s five-year clock starts fresh from the rollover year. Earnings withdrawn before you reach 59½ during that new five-year window could be taxable. Contributions still come out tax-free.
Keeping It as an Inherited Roth IRA
A spouse can also leave the assets in a newly established Inherited Roth IRA and remain a beneficiary. As an Eligible Designated Beneficiary, the spouse can take distributions over their own life expectancy.3Internal Revenue Service. Retirement Topics – Beneficiary This route works well for a spouse under 59½ who wants access to the money without worrying about early withdrawal penalties, since distributions from an inherited account are exempt from that penalty.
Under SECURE 2.0 Section 327, a sole-beneficiary surviving spouse can elect to be treated as the deceased employee for RMD purposes. The election is available for years beginning after December 31, 2023, and can produce better timing when the deceased spouse was younger.4U.S. Senate Committee on Health, Education, Labor, and Pensions. SECURE 2.0 Act of 2022 Section by Section Summary
Staying in the Employer Plan
Some plans allow a surviving spouse to remain in the plan and treat the account as their own, with no immediate distribution requirement. Most plan documents don’t allow this, so ask the plan administrator whether it’s an option.
The 10-Year Rule for Non-Spouse Beneficiaries
If you inherited from a parent, sibling, friend, or anyone other than a spouse, the SECURE Act’s 10-year rule almost certainly applies. You must withdraw the entire balance by December 31 of the tenth year after the year the owner died.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs How you space the withdrawals within that decade is up to you: take everything in year one, wait until year ten, or spread it out.
Inherited Roth 401(k) accounts are simpler than inherited traditional accounts on this point. SECURE 2.0 eliminated lifetime RMDs for Roth 401(k) owners as of January 1, 2024. Because there’s no longer a “required beginning date” for Roth accounts, the annual-RMD requirement that applies to some traditional-account beneficiaries doesn’t apply here. You do not have to take a set amount each year during the 10-year window. The only firm deadline is emptying the account by the end of year ten.
Since qualified distributions of both contributions and earnings come out tax-free, the planning question isn’t how to minimize tax on withdrawals. It’s how long you can keep the money growing before the ten-year deadline forces it out. For most beneficiaries who don’t need the cash sooner, waiting makes sense.
Eligible Designated Beneficiaries Get a Stretch
A narrow group of non-spouse beneficiaries can skip the 10-year rule and take distributions over their own life expectancy. The IRS calls them Eligible Designated Beneficiaries:
- A minor child of the deceased owner. Only the owner’s own child qualifies, not grandchildren, nieces, or nephews. The child uses life-expectancy distributions until reaching the age of majority (21 under federal rules), then a fresh 10-year clock starts. The account must be empty by the time the child turns 31.3Internal Revenue Service. Retirement Topics – Beneficiary
- A disabled or chronically ill individual. Life-expectancy distributions can continue for the person’s lifetime.
- A person not more than 10 years younger than the deceased. A close-in-age sibling, for example, can stretch rather than use the 10-year rule.
The stretch dies with the Eligible Designated Beneficiary. Whoever inherits next faces a 10-year deadline running from the EDB’s death.
The Five-Year Rule and Whether Earnings Are Taxable
Two conditions have to be met for a Roth distribution to be fully tax-free. The first is a triggering event, which for a designated Roth 401(k) account means reaching age 59½, death, or disability.5Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts The owner’s death satisfies this automatically for a beneficiary. The Roth IRA first-time home purchase exception doesn’t apply to Roth 401(k) accounts.
The second condition is the five-year holding period. The Roth account must have been open at least five full tax years, counted from January 1 of the year of the owner’s first contribution.6Internal Revenue Service. Retirement Topics – Designated Roth Account You inherit whatever time is already on the clock.
If the five years haven’t run, only the earnings portion is taxable. Contributions always come out tax-free. And because the distribution is being made on account of death, the 10% early withdrawal penalty doesn’t apply to you regardless of your age.7Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Watch the interaction between the two five-year clocks when you roll a Roth 401(k) into an inherited Roth IRA. The Roth IRA has its own clock that starts with the deceased owner’s first Roth IRA contribution, not their first Roth 401(k) contribution. If the deceased never held a Roth IRA, the clock for your new inherited Roth IRA starts from the rollover year, even if the Roth 401(k) had been open for a decade. Check both clocks before taking any earnings out.
When the Beneficiary Is a Trust, Estate, or Charity
A trust can qualify as a “see-through” trust if it’s valid under state law, irrevocable at the owner’s death, and its beneficiaries are identifiable. Documentation must reach the plan administrator by October 31 of the year following the year of death.8Internal Revenue Service. Internal Revenue Bulletin 2024-33 If it qualifies, the IRS looks through to the individual beneficiaries and applies the 10-year rule or the EDB life-expectancy method based on who they are. A trust that fails see-through treatment is handled as a non-individual beneficiary under less favorable rules.
Estates and charities aren’t individuals, so the SECURE Act rules don’t cover them. Pre-SECURE rules apply instead: five years to fully distribute if the owner died before their required beginning date, or distributions over the deceased owner’s remaining life expectancy if after. Since Roth 401(k) owners no longer have a required beginning date after 2023, the five-year rule will apply to most new estate and charity inheritances going forward.3Internal Revenue Service. Retirement Topics – Beneficiary
What Happens If You Miss a Deadline
Missing a required distribution triggers a 25% excise tax on whatever you should have withdrawn but didn’t. That applies whether you missed an annual life-expectancy amount or failed to empty the account by the end of year ten.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Catch the mistake and withdraw the shortfall within two years, and the penalty drops to 10%.
To fix it, file IRS Form 5329 with a statement explaining what happened. Serious illness, a death in the family, or a custodian error are the sort of reasons the IRS may accept. Write “RC” for reasonable cause on the relevant line to ask the IRS to waive the penalty; the agency reviews requests individually and notifies you if it denies the waiver.9Internal Revenue Service. Instructions for Form 5329
Most custodians that hold inherited accounts will track your deadlines and send reminders, but the legal responsibility for taking the distribution on time sits with you. Set your own calendar reminders for year-end, and confirm each year that your custodian’s math matches yours.