When Does a Trust or Estate Have to Withdraw an Inherited 401(k)?

A designated beneficiary must be an individual, so an estate, a charity, or a trust that does not meet the see-through requirements is not one. For a death before the required beginning date the entire account must be distributed by the end of the calendar year that includes the fifth anniversary of death. For a death on or after that date, annual withdrawals continue over the owner's remaining life expectancy.

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.

Beneficiaries are determined as of September 30 of the year after the year of death. If separate accounts for each beneficiary are established by the end of that calendar year, the rules apply separately to each; if not, the aggregate distribution for later years is determined without the separate account rule.

25% of the amount that should have been withdrawn but was not, paid by the beneficiary. The rate drops to 10% when the missed amount is withdrawn from the same plan and a return reflecting the tax is filed, both inside the correction window, which ends at the earliest of a notice of deficiency, an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.