You generally cannot avoid taxes entirely on an inherited 401(k); you can only minimize or defer them
Leave the account to a spouse, if possible, to preserve the most tax-favorable options
Have the spouse roll the inherited 401(k) into their own IRA or treat it as their own account
Use a direct trustee-to-trustee transfer when moving inherited retirement funds
Take distributions over time instead of withdrawing the entire balance at once
Stretch withdrawals across the allowed distribution period under current inherited retirement account rules
Convert the inherited 401(k) to an inherited IRA when permitted by the plan
Delay withdrawals only if the account rules and required distribution rules allow it
Name a trust only if it is properly drafted to qualify for favorable tax treatment
Coordinate beneficiary designations with an estate planning attorney and tax professional
Consider leaving other assets to heirs and keeping retirement accounts for tax-advantaged beneficiaries
Use qualified charitable distributions only if the account has already been inherited into an IRA and the rules allow it
Avoid cashing out the entire inherited 401(k) in one year
Plan distributions to stay in lower tax brackets
Review whether the original owner died before or after their required beginning date
Check whether the beneficiary is an eligible designated beneficiary under current law
Confirm whether the plan requires a lump-sum payout or allows rollover options
File and follow all required beneficiary and distribution paperwork on time
Consult a tax advisor before taking any distribution from an inherited 401(k)