Q: I don’t know if this is important or not. I heard somewhere a beneficiary’s window is quite short to reinvest or spend their 401k inheritance.
A: A spouse beneficiary can rollover to their own IRA, which will allow them to use the uniform lifetime table life expectancy which is very favorable. Thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 that went into effect in 2020, the stretch IRA was eliminated and replaced with a 10-year payout for all beneficiaries, except for certain Eligible Designated Beneficiaries:
- Surviving Spouse
- Minor children (but not grandchildren) up to majority – age 18 in most states (or up to age 26 if still in school)
- Disabled individuals – subject to the strict IRS standard
- Chronically ill
- Beneficiary not more than 10 years younger than the IRA owner
(or plan employee)
Effective: For deaths after 2019. For deaths in 2019 or prior years, the designated beneficiary could use the single life expectancy table for the year after death every year after that and subtract one. See IRS link for non-spouse inheritance prior to 2020.