What happens with money in 401k, IRA and RothIRA when the person dies (either before or after retirement age)?

Question

Can the family members get it/inherit it? If yes, do they have to get it in monthly payments for years and years until all funds are withdrawn?

Answer 1

Speaking in regards to the 401k only.  The person was allowed to name a beneficiary(ies) when they enrolled in the plan.  If the people that they named (if any) are still living then they simply inherit the balance of the account.  The account would then be put in the name of the beneficiary and they would then have the ability to withdraw it or roll it over to an IRA.  Normally the distribution from the 401k would have to start by the end of the year that contains the 5th anniversary of the death.  There are many other rules concerning this but they are much too detailed and lengthy to get into here.  You can research this on the www.irs.gov website if you are able to.  

If there were no named beneficiaries then the balance would be payable to the person's estate.

Answer 2

The Roth IRA is easy.  They get it.  No income tax.

The 401K and IRA are pre-tax money so while the heirs get the money, they owe the income tax.  Many people stupidly take the money as a lump sum.  For an IRA, the rules let you stretch it out. It used to be a mere 5 years.  Now it's better than that.

Note if the estate is sized over the estate limit, there is a wealth tax.  This is over and above income tax.  If the estate pays estate tax (thus reducing the amount of money the person receives) and then the individual pays income tax on getting the money from the IRA, there is a deduction for part of the estate tax.