No Probate Requirement

• As of May 2011, you do not have to wait until the estate goes through probate to access a 401k. If the deceased named you as a beneficiary, you may receive 401k funds as soon as the plan manager learns about the death and processes the transfer of the account. Thus, instead of waiting six to twelve months before inheriting a 401k, you can access a 401k within four to six weeks of the account holder's death.
  
  

Tax Rules

• Normally, the account holder must pay an early withdrawal penalty tax of 10 percent if he takes money out of the 401k before reaching the age of 59 1/2. However, if you inherit a 401k, this rule does not apply; you can receive a lump sum distribution without paying tax. You will have to pay income taxes on any money you receive from an inherited 401k. If the estate is worth more than $3.5 million as of 2011, you can take a tax deduction based on the estate taxes you paid.
  
  

Rolling Over Funds

• You can roll over the funds you receive from the deceased person's 401k to an IRA plan. If you do this, you do not have to pay taxes on the inheritance. However, you must leave the funds in the IRA until you reach the age of 59 1/2. Contact the plan sponsor to transfer inherited funds directly into your IRA; if you receive a check, you still must pay taxes even if you immediately place it into your IRA. If you were married to the deceased, you can roll over funds to your own IRA. If you were not married, you can roll over funds from your inherited 401k to an inherited IRA held by the deceased.
  
  

Distribution Laws

• If you do not roll over funds, you may be required to withdraw them. Many plan administrators distribute funds in one lump sum, although you may be able to set up a payment schedule. If the deceased was receiving distributions on a schedule, the plan may continue distributing the funds to you on the same schedule. If you were married to the deceased, you can choose whether to start receiving payments at the end of the year following your spouse's death or at the end of the year in which she would have been age 70 1/2. However, non-spouses must begin receiving funds by the end of the year following the person's death.