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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For non-spouse beneficiaries inheriting a 401(k), the IRS generally requires the account to be emptied within 10 years of the original account owner’s death. While taking a lump sum distribution is an option, spreading the payments out over the full 10 years offers several key advantages, primarily related to tax management and potential for continued growth: 

1. Managing Your Tax Liability:

• Avoid Higher Tax Brackets: A lump sum distribution adds the entire inherited amount to your income for that year, which can push you into a higher tax bracket and result in a significant tax bill.
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• Spread Out Tax Burden: Taking distributions over 10 years allows you to spread the tax burden over a longer period, potentially keeping you in a lower tax bracket each year and reducing your overall tax liability.
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• Strategic Withdrawal Timing: You can strategically plan withdrawals in years when you are in a lower tax bracket (e.g., when you have lower earned income) to minimize the tax impact. 

2. Potential for Continued Growth:

• Tax-Deferred Growth: Leaving the funds in an inherited IRA allows them to continue growing tax-deferred during the 10-year period. This can significantly increase the total amount you ultimately receive.
• More Control Over Investments: Transferring the funds to an inherited IRA gives you more control over investment decisions, potentially allowing you to choose investments that align with your financial goals. 

3. Avoiding Penalties (under certain conditions):

• No Early Withdrawal Penalty: Unlike your own 401(k), withdrawals from an inherited IRA are generally not subject to the 10% early withdrawal penalty, even if you are under age 59 ½. This provides flexibility if you need access to some funds sooner. 

In Summary:

By taking advantage of the 10-year distribution period, non-spouse beneficiaries of inherited 401(k)s can minimize their tax burden, maximize the potential for their inheritance to grow tax-deferred, and gain more control over their investment strategy. 

Important Note: The information provided here is for general knowledge and should not be considered financial or tax advice. It is always recommended to consult with a qualified financial advisor or tax professional to determine the best distribution strategy for your specific situation. 

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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.