Peggy called our office and said, "I need to meet with David as soon as possible. My dad passed away and I'm dealing with all his financial stuff, and I'm just confused and need some straight answers. I only want to meet with David as he helped me with my Medicare, and he has a way of explaining things to me that helps me understand."
When Peggy arrived for her appointment, and after we got her a hot cup of tea and settled in a comfortable chair, I offered my condolences on her loss. Then I simply asked, "How can I help?"
"I'm dealing with all these accounts and investments. There are just dibs and dabs of accounts everywhere and I just need some help on what to do." She continued with the fact that her dad made her the beneficiary on all the accounts and the house she grew up in. Her main concern was what her tax exposure was going to be?
Understanding the Tax Situation
I let her know that while I can't give tax advice, that yes, there was going to be some tax exposure. Especially with any 401K, 403b, or IRAs if the accounts were made with money that was never taxed. More importantly the money in those accounts must be depleted over a 10-year period and taxes paid on the money as it is withdrawn. We generally recommend payouts spread out over the 10 years in order to avoid paying lump sum taxes.
As we continued the discussion, I could see Peggy visibly start to relax. She was especially relieved when I let her know we could assist her with all these types of accounts. After the assets were transferred or liquidated, we can also design a plan of what to do with the money over the long term and educate her on her options.
Handling the Details
Most importantly, we would handle all the paperwork and guidance on setting up new investments in her name. At this point Peggy got a bit emotional. I was quick to hand her the Kleenex box I always have as I know folks tend to react in different ways to good news.
I let Peggy know that at the next meeting we would have most of the issues resolved. As she was leaving, she let us know that she appreciated our time together with the education and information.
Need information on what your next move should be? Or maybe just help with paperwork and organization? Call us! We can help!
By David Edge
David Edge is a retirement lifestyle writer and contributor to the ARA monthly newsletter. His articles blend personal stories with practical insights on living well in retirement.
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Easy Eddie's Take
David's story about Peggy is something I hear all the time. A lot of people ask me, "What happens when I inherit my parent's 401k or IRA?" Here's the key thing to understand: the SECURE Act of 2019 changed the rules significantly. Most non-spouse beneficiaries now must withdraw all inherited retirement account funds within 10 years, and those withdrawals from traditional 401k, 403b, and traditional IRA accounts are taxed as ordinary income.
The good news is you have flexibility in how you take those distributions over the 10 years. You might take equal amounts each year, or you could take larger amounts in years when your other income is lower to manage your tax bracket. For 2026, if you're married filing jointly, staying under the 12% tax bracket means keeping your total taxable income under $89,450. Working with someone who understands inherited retirement accounts can help you create a withdrawal strategy that makes sense for your situation.
Most people are surprised when they learn this, but inherited assets like the family home typically get what's called a "stepped-up basis," which means you won't owe capital gains tax if you sell it right away. A little planning can make this whole process much smoother than it first appears.