When Does a Surviving Spouse Have to Withdraw an Inherited 401(k)?

A surviving spouse who is the sole beneficiary may delay the start of life expectancy payments until the end of the calendar year in which the owner would have reached the applicable age. If the spouse dies before distributions begin, the rules are applied as if the spouse were the owner, with the spouse's date of death substituted.

Five classes, determined as of the owner's date of death: the surviving spouse; a child of the owner under the age of majority, which the regulation sets at the 21st birthday; a disabled individual; a chronically ill individual; and an individual not more than 10 years younger than the owner. An eligible designated beneficiary may take annual life expectancy payments instead of emptying the account within a fixed period.

Yes. A defined contribution plan may specify that the 10-year rule applies to some or all eligible designated beneficiaries, or may let the employee or beneficiary elect between the 10-year rule and life expectancy payments. When the plan has no such provision, an eligible designated beneficiary takes life expectancy payments. The plan document decides.

25% of the amount that should have been withdrawn but was not, paid by the beneficiary. The rate drops to 10% when the missed amount is withdrawn from the same plan and a return reflecting the tax is filed, both inside the correction window, which ends at the earliest of a notice of deficiency, an assessment, or the last day of the second taxable year after the year the tax applies to. The IRS may waive the tax for reasonable error on a Form 5329 request, and the regulation waives it automatically in two cases.