# Your Dad's 401(k) Plan May Not Be as Flexible as an IRA

> Moving a father's 401(k) to an inherited IRA avoids a $34,000 tax spike by spreading withdrawals over 10 years.
- Title: Your Dad's 401(k) Plan May Not Be as Flexible as an IRA
- Summary: Moving a father's 401(k) to an inherited IRA avoids a $34,000 tax spike by spreading withdrawals over 10 years. Inheriting a 401(k) as a lump sum triggers…
- Keywords: 401(k), inherited ira, tax code, lump sum, 10-year clock, federal tax, tax brackets, irsa, Dad's, 401, Plan, May
- Source: 24/7 Wall St. — https://247wallst.com/personal-finance/2026/10/21/your-dads-401k-plan-may-not-be-as-flexible-as-an-ira-heres-how-moving-it-to-an-inherited-ira-keeps-the-10-year-clock-on-your-side
- Author: Vilma Rios
- Published: 2026-10-21T08:00:17+00:00
- Read time: 1 min
- Topics: 401(k), inherited ira, tax code, lump sum, 10-year clock, federal tax, tax brackets, irsa
## Inherited 401(k) Tax Problem
A 58-year-old single woman inherits her father's $400,000 401(k) plan after he dies at 70 in 2025.
## Lump Sum Tax Spike
Taking the full balance as a lump sum triggers $123,664 in federal tax versus $8,964 per year for 10 years.
## Section 402(c)(11) Transfer
Direct trustee-to-trustee transfer moves dad's 401(k) to inherited IRA without 20% withholding tax.
## 10-Year Clock Rules
Beneficiaries must empty inherited IRA by December 31, 2035 for a 2025 death, with annual withdrawals starting in year 10.
## Tax Bracket Impact
In 2026, $40,000 annual withdrawals stay below 24% tax bracket while lump sum pushes into 35% bracket.
## Avoiding 25% Penalty
Missing annual withdrawals triggers 25% excise tax on shortfall, reducible to 10% if corrected within window.
## Optimal Withdrawal Strategy
Withdraw enough each year to stay below 24% tax bracket while avoiding Medicare premium spikes.
## Tax Professional Advice
Run numbers with CPA or fiduciary advisor before plan sends lump sum check to avoid tax spikes.
## Key takeaway

Inheriting a 401(k) as a lump sum triggers higher taxes than spreading withdrawals over 10 years under IRS rules.