'I Have 3 Children That Will Inherit My 401(k). How Is The RMD Completed?' Here's What Suze Orman Says

If you're planning to pass down a 401(k) to your children, you're not alone. Many retirees want to ensure their hard-earned savings benefit the next generation. But when it comes to required minimum distributions, the process can get a little complicated — especially if there are multiple non-spouse beneficiaries.

Suze Orman recently addressed a listener’s question about this very topic on her "Women & Money" podcast. Here’s what you need to know if your kids are set to inherit your 401(k).

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The First Step: Move the 401(k) Into Inherited IRAs

Orman stressed the importance of one crucial action: "Just make sure that if the money is still in a 401(k) when you die, that they do inherited IRAs at a brokerage firm," she said.

Why? A 401(k) may have limited distribution options, whereas an inherited IRA allows for more flexible withdrawal strategies. Each child would open their own inherited IRA, and the 401(k) would be split accordingly. From there, the rules for RMDs kick in.

Know the Beneficiary Type: Eligible or Not?

According to Orman, how the RMD is calculated depends on whether your children qualify as eligible designated beneficiaries. Under IRS rules, most adult children are considered non-eligible designated beneficiaries — meaning they must follow the 10-year rule.

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This rule was introduced under the SECURE Act. It requires non-eligible beneficiaries to withdraw the entire account balance within 10 years of the original owner’s death. However, Fidelity explains that if the owner of the account passes away after their RMDs have started, their beneficiaries may also have to take annual RMDs based on the owner's remaining life expectancy.

In other words, they can't just wait 10 years and cash out the entire account all at once — unless you died before RMDs began. If you had already started taking RMDs, your children may need to continue them annually, then fully distribute the account by the end of year 10.

What If One Child Is a Minor?

Not all beneficiaries are treated the same. If one of your children is still a minor at the time of inheritance, the rules shift slightly. According to Fidelity, minor children can take distributions based on life expectancy until they turn 21. After that, the 10-year rule applies, meaning they'd need to fully withdraw the remaining funds by age 31.

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Why Roth Accounts Make Things Easier

While not directly related to RMDs, Orman used the opportunity to share a planning tip: "You really want to save your beneficiaries a whole lot of trouble — just do a Roth retirement account." Inherited Roth IRAs are still subject to the 10-year rule, but distributions are tax-free as long as the account was open for at least five years, and there’s no RMD during the 10 years.

If you have multiple children who will inherit your 401(k), it’s wise to make a plan now. Talk to a financial advisor or tax professional about converting to a Roth, setting up inherited IRAs, and making sure your beneficiaries understand the 10-year distribution rule.

A little planning today could save your family a lot of confusion — and taxes — in the future.

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