Christopher S. Mulvaney,

Attorney and Counselor-at-Law

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THIS WEBSITE INCLUDES GENERAL INFORMATION & THE OPINIONS OF CHRISTOPHER S. MULVANEY. IT IS INTENDED TO STIMULATE A BASIS FOR QUESTIONS RELATED TO YOUR PARTICULAR FACTUAL CIRCUMSTANCES — BEFORE YOU ACT.  THIS WEBSITE DOES NOT CONSTITUTE LEGAL ADVICE. IF YOU WANT LEGAL ADVICE, PLEASE MAKE A ZOOM APPOINTMENT TO SPEAK WITH ME.

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Gonzaga University School of Law – Spokane, Washington – Class of 2002 – Cum Laude The Latin phrase “Deo patriae, scientiis, artibus” translates to “For God and country through sciences and arts”.  The initials A.M.D.G. on the seal of Gonzaga Law School stand for Ad Majorem Dei Gloriam, which is Latin for “For the Greater Glory of God” the Motto of the Society of Jesus (Jesuits): a Catholic religious order founded by St. Ignatius of Loyola.

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Washington state tax considerations for 401(k) beneficiaries in 2025

While Washington State doesn’t have a state income tax and therefore no specific tax on retirement income like 401(k) distributions, there are other important tax implications for beneficiaries in 2025 related to inherited 401(k)s: 

Do not cash out an inherited retirement account all at once. Take the full 10 years to take a complete distribution getting advice from a CPA and financial advisor.

I had a client whose father died and left her $500,000 in a 401(k). She didn’t know she had a decade to cash it out, so she did so all at once incurring a tax bill of over $125,000. She asked me if she could put the money back and I had the misfortune of telling her no.

1. Federal Income Tax: Inherited 401(k) distributions are subject to federal income tax at the beneficiary’s ordinary income tax rate. This means that the withdrawals will be added to your taxable income for the year, and depending on the amount, could push you into a higher tax bracket.
2. Required Minimum Distributions (RMDs) and the 10-Year Rule: The SECURE Act of 2019 introduced changes to inherited retirement accounts. Most non-spouse beneficiaries are now subject to the “10-year rule”, meaning the entire inherited 401(k) balance must be withdrawn by the end of the 10th year following the account owner’s death. 

• If the original owner had already started taking RMDs before their death, the beneficiary must take annual RMDs within the 10-year period.
• Missing RMDs can result in a significant penalty of 25% of the missed amount, which can be reduced to 10% if corrected promptly.
• Certain beneficiaries, such as surviving spouses, minor children, disabled or chronically ill individuals, and those close in age to the original owner, may be exempt from the 10-year rule. 

Making additional tax-deferred contributions to your own retirement accounts can help mitigate the tax impact of inherited 401(k) distributions.

Planning Considerations:

Surviving spouses have more flexibility, including rolling over the inherited 401(k) into their own retirement accounts.

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Washington State residents can meet with me in Zoom/DocuSign from anywhere in the world, and I can notarize their electronic signatures because I am a remote online notary.  Just email me an image of your photo ID.