The rules for a 401(k) or IRA beneficiary

7 min read

Inheriting an IRA, 401(k) or other type of retirement account is often a mixed blessing. The funds can contribute to a beneficiary’s financial security, yet the inheritance itself is usually connected with the death of a loved one. That can interfere with the ability to make objective, intelligent decisions regarding its use.

On top of that, the rules governing these assets are complicated. Spousal beneficiaries follow one set of rules, while non-spouse beneficiaries follow another. Beneficiaries may need to take action within the same year the account owner has died.

“There are key dates to remember and decisions to make,” says Maura Cassidy, director of retirement products with Fidelity Investments.

Navigating among the options is fraught with potential pitfalls. One misstep can result in major tax consequences.

Because the laws and tax implications are complex, the 401(k) or IRA beneficiary should consult with a financial planning expert. But it’s good to do some of the legwork first. Bankrate’s guidelines can provide a starting point.