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College application deadlines have a tendency to come up fast. But the process of preparing for college typically begins much earlier than senior year.

Plenty of students prefer to get ready as early as their junior year of high school in an effort to strengthen their eventual college applications (and make the process more manageable).

For those interested in college, some years of high school carry more weight — especially, the junior year. Colleges often look more closely at grades and achievements from this year, since coursework tends to be more challenging and it’s the last full academic year they can view before students apply.

As a result, approaching junior year with a clear action plan may give you a leg up on admission into your dream college. Compiling a junior year of high school checklist can help you tackle this vital year with more drive, confidence, and focus.

Here’s an overview of why junior year of high school is so key and some strategies for staying focused while preparing to apply for college.

Why Junior Year Is Important

Junior year of high school can be especially impactful for strengthening your college application. Since it’s the last school year that universities can look at in full, many admissions committees pay particularly close attention to grades and extracurricular activities from junior year.

The third year of high school can feel overwhelming for a few reasons:

•   Class difficulty levels are often higher than earlier years.

•   Students can begin studying now for the SAT and ACT. (It’s possible to take these exams in the spring of junior year, affording juniors a chance to retake them during the fall of senior year.)

•   Upper-class students can take on numerous extracurriculars and a part-time job.

To help make junior year a lighter lift, it can help to enter into it with a checklist in hand. This can not only relieve stress but lead to more success when college acceptance letters are sent out the next year. What follows are some helpful things to keep in mind to make more out of this critical year.


💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.

Getting Involved in Extracurriculars

To strengthen their college applications, many juniors opt to get more involved with organizations or activities they care deeply about. Being involved in extracurriculars doesn’t have to feel like a chore.

Extracurriculars that might stand out on a college application include clubs, student council, volunteering, athletic endeavors, and more. There’s no one-size-fits-all way for students to be engaged in school or in their communities.

Many high schools host a variety of clubs that students can join. You might choose one or two you’re really passionate about. Participating in a club can serve as a break from hitting the books (all while still fleshing out your college application profile).

Volunteer work is another way to stand out when applying to college. During your junior year, you might seek out a volunteer opportunity with a nonprofit you feel strongly about. Or you might choose a field you hope to work in one day. For instance, if you’re interested in medicine, you might seek out volunteer opportunities in a local hospital.

Staying Focused

To stay organized and focused during your junior year, consider keeping a digital calendar or paper planner. With eight dates available to take the SAT, and ten different dates available to take the ACT, it can be easy for busy students to lose track of when to study for and schedule their standardized tests.

Once you select a test day, it’s a good idea to mark it down on your calendar or planner. You can then work backwards, planning out practice tests and study sessions during the build-up to the testing date.

The simple act of writing things down can make them easier to remember, so some researchers suggest jotting down key dates first in a physical planner before then adding them to a digital device or calendar.

Recommended: ACT vs. SAT: Which Do Colleges Prefer?

Making a Junior Year Checklist

In addition to writing down important dates, you might benefit from making a personalized junior year checklist. Some tasks you could include are:

•   Studying for major tests, like the SAT or ACT

•   Joining extracurricular clubs or organizations

•   Researching different colleges and universities

•   Getting familiar with the format of college applications

Once you draft your checklist, you can then make to-do lists under each subcategory. Use your calendar/planner in tandem with your checklist to stay on top of these goals and deadlines.

Designating a Study Space

Creating a dedicated space for studying can also improve your focus during a jam-packed school year. You might opt to designate a comfy space at home, where you can concentrate on your studies. To make the space both inviting and conducive to working, consider decking it out with school supplies, keeping it clutter-free, and decorating it with inspirational pictures or personal items (like a photo of your dream school).

Remembering to Reward Accomplishments

To keep up your motivation, it’s important to reward major accomplishments during this high-stakes year. Once you’ve scheduled and mapped out important dates and tasks, you might make another list of potential fun rewards for meeting each goal. Aced those finals? Binge on some light TV. Finished the SAT practice exam? Download that new game everyone’s been playing.

Keep in mind that an overly hectic junior year can lead to excess stress and possibly make it harder to accomplish big goals. Carving some time out for regular breaks can help you avoid burnout.

Getting a First Job

Junior year can also be a good time to get your first part-time job. If you can find a job that’s easy to get to and from (and doesn’t distract from academics), work experience can be one more experience to highlight on a college application down the road. Holding a part-time job at a young age demonstrates skills such as time-management and personal responsibility.

Your high school might also offer “work-like” opportunities to upperclassmen, such as working on the school yearbook, interning for credit, or volunteering on or off site.

Recommended: Am I Eligible for Work-Study?

Financing College

Earning admission is just one piece of the going-to-college puzzle. Once accepted, many high schoolers wrestle with how to pay for college.

Some funding options include savings, need-based grants, merit or affinity scholarships, federal student loans, and private student loans.

Some grants, such as Federal Pell Grants, are disbursed by the U.S. government to students with financial need. Grants, unlike loans, do not typically have to be repaid by the student. Scholarships, another source of “free money,” are frequently merit-based, meaning they’re often awarded based on a student’s academic, athletic, or community-based accomplishments. You can find information about scholarships through your high school guidance counselor, the financial aid office at your chosen college, and by using an online scholarship database.

Loans are another common way to help pay for college. There are both federal and private student loans. Federal student loans are issued by the U.S. Department of Education and come with various benefits, including low fixed interest rates, income-driven repayment, and deferment options. Private student loans are funded by banks, credit unions, and online lenders. These loans can have fixed or variable interest rates, and repayment terms vary depending on the lender. Approval for private loans is typically based on the borrower’s credit score and history; students typically need a cosigner.


💡 Quick Tip: Parents and sponsors with strong credit and income may find more competitive rates on no-fees-required private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

The Takeaway

Junior year isn’t just another grade — it’s a turning point that can play a vital role in shaping your college journey. With your grades, test scores, extracurricular, and leadership roles carrying extra weight this year, planning ahead can give you the chance to stand out when it’s time to apply to college.

Whether it’s prepping for standardized tests, leaning in on extracurricular activities, exploring career interests through volunteering, or researching your funding options, the steps you take this year can open big doors when application season arrives.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

Why is the junior year of high school important?

Junior year is often considered a pivotal stage in high school because it’s the last full academic year colleges can evaluate before applications are submitted. This is a time when students are expected to demonstrate academic growth and maturity, often by taking on more challenging coursework. It’s also when students take standardized tests like the SAT or ACT. Strong performance in junior year can give you access to more selective colleges, scholarships, and advanced senior year opportunities.

Does junior year matter in high school?

Yes, junior year matters significantly in high school. Colleges often see it as the most telling year of a student’s academic ability since it reflects performance in challenging upper-level courses. It’s also when extracurricular involvements, leadership roles, and community service can become more meaningful on applications. Since college admissions officers often review transcripts through junior year, strong grades and achievements during this time can make a major difference in future opportunities.

Why is 11th grade the most important year?

Eleventh grade is often considered the most important year because it’s the final full year of grades colleges will see before applications are submitted. Students are typically enrolled in their most challenging courses, giving them a chance to show academic growth. Standardized tests scores, advanced coursework, and extracurricular commitments during this year can help open doors during application season.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOISL-Q325-086

While college rankings matter, it can be a good idea to view them through a lens of what matters most to you about the college experience and what you’re hoping to get out of it.

Colleges and universities each have different strengths and weaknesses, and published rankings can help you learn which schools are the strongest in different areas, and whether or not a college has improved or lagged behind other schools in recent years.

Rankings may also allow you to filter schools by selected academic and nonacademic characteristics, and help you hone in on schools that may meet your specific needs.

That said, rankings aren’t everything. Even U.S. News & World Report says on its best-colleges website: “The rankings provide a good starting point for students trying to compare schools.… The best school for each student, experts say, is one that will most completely meet his or her needs, which go beyond academics.

Here’s what you need to know about college rankings.

What Are the College Rankings?

There is no single, ultimate, college ranking. All over the world, there are entities using a wide array of criteria to appraise universities and determine which ones are “the best.”

The factors an organization or company will use to come up with their college rankings can vary, which is why you might see a school ranked #3 on one list and #9 on another. However, here are some factors list-makers will commonly consider when ranking schools:

•  Student-faculty ratio

•  Class sizes

•  First year retention rates

•  Graduation rates

•  Post-graduation employment statistics

•  Student debt after graduation

•  Acceptance rates

•  ACT and SAT scores

•  Endowment size

•  Academic reputation

•  Faculty salaries

•  Research output

Though college rankings typically consider a large amount of information, they won’t tell you everything you need to know about a college. As a result, you may want to use rankings as one of many factors to make your list of prospective colleges. Ideally, you want to find a school that matches your interests, needs, goals, and budget.


💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

What Really Matters

Although many groups rank colleges, the term “college rankings” commonly refers to the U.S. News & World Report list, which rewards graduation rates and reputation.

But there’s also The Princeton Review, which drills down on other factors like quality of life, extracurriculars, social scene, and town life. They even rank colleges with “Lots of Beer,” based on student ratings of how widely beer is used at their schools, and “Lots of Greek Life,” based on student ratings of the popularity of fraternities and sororities at their schools.”

As you look at different college rankings, you’ll want to keep your own priorities in mind, whether that’s finding the best school for your chosen field, honing in on schools that have the smallest class sizes, or finding a school that is known for being a good value.

You may want to use college rankings in combination with a number of other resources, including college guide books and talking to friends and family that have gone (or currently go) to schools that interest you. College tours can also provide a wealth of information about a school.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

The Bottom-Line Question

No discussion of college would be complete without touching on what you can afford to spend. Is going to college worth it? The answer depends on how much your chosen college will cost, how much aid you will get, how much you will need to borrow, and what you plan to do with your degree.

To get a sense of what a college will cost you out-of-pocket, a good first step is to fill out the Free Application for Federal Student Aid (FAFSA), which considers eligibility for grants, federal student loans, and work-study programs. But even after scholarships, federal aid, and any college savings plans, many students come up short when all education expenses are tallied.

At that point, you may want to consider private student loans. These are available from private lenders, such as banks, credit unions, and online lenders. Rates and terms will vary depending on the lender, so it can be well worthwhile to shop around. Borrowers (or cosigners) with excellent credit tend to qualify for the lowest rates. Just keep in mind that private student loans don’t necessarily offer the same protections, like income-driven repayment, that come with federal student loans.

The Takeaway

College rankings can be a useful tool in your search, but they tend to be best used as a starting point, not the deciding factor. While rankings can help highlight a school’s strengths and unique characteristics, they don’t capture the full picture of campus culture, support systems, or personal fit.

Your ideal school is the one that aligns with your academic goals, financial realities, and the experience you want to have — both inside and outside the classroom. Use ranking in combination with campus visits, conversations with current students, and your own priorities to find the college that feels like the right match for you.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

Do universities care about rankings?

Universities often care about rankings as they can influence reputation, student applications, and funding opportunities. High rankings can attract top faculty and students, enhance prestige, and provide a competitive edge in the academic world. However, not all institutions prioritize them equally. Some focus more on academic mission, student experience, or community impact than on external ranking systems.

Do university rankings matter?

University rankings can matter, but their importance depends on your goals. For some students, a highly ranked school offers stronger networking opportunities, research resources, and perceived prestige. However, rankings don’t always reflect teaching quality, campus culture, or fit for individual students. They’re often based on quantifiable metrics, such as research output and reputation surveys, that may not match every student’s priorities. Ultimately, rankings can be one factor, but not the only one, in choosing a school.

Why do people care so much about college rankings?

People care about college rankings because they provide a quick, comparative measure of institutional quality. A higher-ranked school is often associated with better job prospects, stronger alumni networks, and academic excellence. Social pressure and media coverage amplify their significance, making rankings seem like a decisive factor, even though individual fit may matter more.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOISL-Q325-087

When you inherit a 401(k) retirement account, there are tax rules and other guidelines you must follow in order to make the most of your inheritance.

Inheriting a 401(k) isn’t as simple as an inheritance like cash, property, or jewelry. How you as the beneficiary must handle the account is determined by your relationship to the deceased, your age, and other factors.

Understanding the tax treatment of an inherited traditional 401(k) is especially important because these 401(k) accounts are tax-deferred vehicles. That means regardless of your status as a beneficiary you will owe taxes on the withdrawals from the account, now or later.

What Is an Inherited 401(k)?

The rules for inheriting a 401(k) account are different when you inherit the account from a spouse versus someone who wasn’t your spouse. Depending on your relationship, there are different options for what you can do with the money and how your tax situation will be affected.

A traditional 401(k) is a tax-deferred retirement account, and the beneficiary will owe taxes on any withdrawals from that account, based on their marginal tax rate.

Inheriting a 401(k) From a Spouse

A spouse has a number of options when inheriting a 401(k). These include:

•   Roll over the inherited 401(k) into your own 401(k) or into an inherited IRA: For many spouses, taking control of an inherited 401(k) by rolling over the funds is often the preferred choice. For instance, you could open an IRA and roll over the inherited 401(k) into it. A rollover gives the money more time to grow, which could be useful as part of your own retirement strategy. Also, rollovers do not incur penalties or taxes.

However, it’s worth noting that if you convert funds from a traditional 401(k) to a Roth 401(k) or a Roth IRA, you will likely owe taxes on the conversion to a Roth account.

Also, once the rollover is complete, traditional 401(k) or IRA rules apply, meaning you’ll face a 10% penalty for early withdrawals before age 59½.

And when you reach age 73, you must start taking required minimum distributions (RMDs). Because RMD rules have recently changed, owing to the SECURE Act 2.0, it may be wise to consult a financial professional to determine the strategy that’s best for you.

•   Take a lump sum distribution: Withdrawing all the money at once will not incur a 10% early withdrawal penalty as long as you’re over 59 ½, but you’ll owe income tax on the money in the year you withdraw it — and the amount you withdraw could move you into a higher tax bracket.

•   Reject or disclaim the inherited account: By doing this, you would be passing the account to the next beneficiary.

•   Leave the inherited 401(k) where it is (as long as the plan allows this option): If you don’t touch or transfer the inherited 401(k), you are required to take RMDs if you’re at least 73. If you’re not yet 73, other rules apply and you may want to consult a professional.

Inheriting a 401(k) From a Non-Spouse

The options for a non-spouse beneficiary such as a child or sibling are more limited. For example, as a non-spouse beneficiary you cannot roll over an inherited 401(k) into your own retirement account. These are the options you have:

•   “Disclaim” or basically reject the inherited account.

•   Take a lump-sum distribution. If you are 59 ½ or older, you won’t face the 10% penalty, but you will have to pay taxes on the distribution.

•   Roll over the inherited 401(k) into an inherited IRA. This allows you to take distributions based on a specific timeline, as follows:

If the account holder died in 2019 or earlier, one option you have is to take withdrawals for up to five years — as long as the account is empty after the five-year period. This is known as the five-year rule. The other option is to take distributions based on your own life expectancy beginning the end of the year following the account holder’s year of death.

If the account holder died in 2020 or later, you have 10 years to withdraw all the funds. You must start taking withdrawals starting no later than December 31 of the year after the death of the account holder. This rule is known as the 10-year rule.

Note that if you are a non-spouse beneficiary and you’re younger than 59 ½ at the time the withdrawals begin, you won’t face a 10% penalty for early withdrawals.

The exception to the 10-year rule is if you’re a minor child, chronically ill or disabled, or not more than 10 years younger than the deceased, you are considered an eligible designated beneficiary and you can take distributions throughout your life (see more about this below). In that case, you might want to use the distributions to set up a retirement account of your own, such an IRA, in a brokerage account or an online brokerage, for instance.

Tax Implications for Spouses vs. Non-Spouse Beneficiaries

In general, distributions from inherited traditional 401(k)s for both spouse and non-spouse beneficiaries are subject to income tax. That means the beneficiaries pay taxes based on their current tax rate for any withdrawals they make. This is something to keep in mind if you are considering a lump sum distribution. In that case, the taxes could push you into a higher tax bracket.

One option spouse beneficiaries have that non-spouse beneficiaries don’t, is to roll over the 401(k) into their own 401(k) or IRA. Such a rollover will not incur taxes at the time it takes place — the funds are treated as if they were originally yours. With this option, RMDs (and the taxes they entail) don’t need to be taken until you are 73.

How RMDs Impact Inherited 401(k)s

If the account holder died prior to January 1, 2020, beneficiaries can use the so-called “life expectancy method” to withdraw funds from an inherited 401(k). That means taking required minimum distributions, or RMDs, based on your own life expectancy per the IRS Single Life Life Expectancy Table (Publication 590-B).

But if the account holder died after December 31, 2019, the SECURE Act outlines different withdrawal rules for those who are defined as eligible designated beneficiaries.

Calculating RMDs for Inherited 401(k)s

Calculating RMDs is different for spouse beneficiaries and non-spouse beneficiaries. Spouse beneficiaries who roll over the 401(k) into an inherited IRA can take RMDs based on their age and life expectancy factor that’s in the IRS Single Life Expectancy Table.

For non-spouse beneficiaries, if the original 401(k) account holder died before January 1, 2020, and the account holder’s death occurred before they started taking RMDs (called the required beginning date), the beneficiary can take distributions based on their own life expectancy starting at the end of the year following the account holder’s year of death. Or they can follow the five-year rule outlined above.

However, if the account holder’s death occurred after they started taking RMDs, non-spouse beneficiaries can take distributions based on their own life expectancy or the account holder’s remaining life expectancy, whichever is longer.

The scenario changes if the account holder died in 2020 or later because of SECURE 2.0. This is when the withdrawal ranges depend on whether the non-spouse beneficiary is an eligible designated beneficiary or a designated beneficiary. An eligible designated beneficiary can take RMDs based on their own life expectancy or the account holder’s remaining life expectancy, whichever is longer — or they can use the 10-year rule mentioned above. A designated beneficiary, on the other hand, must follow the 10-year rule.

What Is an Eligible Designated Beneficiary?

To be an eligible-designated beneficiary, and be allowed the option to take RMDs based on your own life expectancy, an individual must be one of the following:

•   A surviving spouse

•   No more than 10 years younger than the original account holder at the time of their death

•   Chronically ill

•   Disabled

•   A minor child

Individuals who are not eligible-designated beneficiaries must withdraw all the funds in the account by December 31st of the 10th year following the year of the account owner’s death.`

Exceptions to the 10-Year Rule for Eligible Designated Beneficiaries

Eligible designated beneficiaries are exempt from the 10-year rule (that is, unless they choose to take it). With the exception of minor children, eligible designated beneficiaries can take distributions over their life expectancy.

Minor children must take any remaining distributions within 10 years after their 18th birthday.

Recommended: Retirement Planning Guide

How to Handle Unclaimed Financial Assets

What if someone dies, leaving a 401(k) or other assets, but without a will or other legally binding document outlining the distribution of those assets?

That money, or the assets in question, may become “unclaimed” after a designated period of time. Unclaimed assets may include money, but can also refer to bank or retirement accounts, property (such as real estate or vehicles), and physical assets such as jewelry.

Unclaimed assets are often turned over to the state where that person lived. However, it is possible for relatives to claim the assets through the appropriate channels. In most cases, it’s incumbent on the claimant to provide supporting evidence for their claim, since the deceased did not leave a will or other documentation officially bequeathing the money to that person.

Tips for Locating and Claiming Unclaimed 401(k) Accounts

Because of the SECURE 2.0 Act, it is now generally easier to track down an unclaimed 401(k). As part of the Act, the Department of Labor set up a lost and found database for workplace retirement plans. To use the database, you’ll first need a Login.gov account. You can set up an account online by supplying your legal name, date of birth, Social Security number, and the front and back of an active driver’s license. You’ll also need a cell phone for verification purposes.

Through the lost and found database for workplace retirement plans, you can search for retirement accounts associated with a person’s Social Security number. Once you find an account, the database will provide contact information for the plan administrators. You can reach out to the administrators to find out more about the account and what you might be eligible to collect.

The Takeaway

Inheriting a 401(k) can be a wonderful and sometimes unexpected financial gift. It’s also a complicated one. For anyone who inherits a 401(k) — spouse or non-spouse — it can be helpful to review the options for what to do with the account, in addition to the rules that come with each choice, as well as consider your financial situation and possibly consult with a financial professional.

In some cases, the beneficiary may have to take required distributions (withdrawals) based on their age. In other cases, those required withdrawals may be waived. But in almost all cases, withdrawals from the inherited 401(k) will be taxed at the beneficiary’s marginal tax rate.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Easily manage your retirement savings with a SoFi IRA.

FAQ

Can an inherited 401(k) be rolled into an IRA?

Yes, an inherited 401(k) can be rolled over into an IRA. Spouse beneficiaries of a 401(k) can have it directly rolled over into an inherited IRA account in their name. Non-spouse beneficiaries can do the same. However, if the original account holder died after December 31, 2019, the non-spouse beneficiary must withdraw the entire amount in the account within 10 years.

Are there penalties for not taking RMDs from an inherited 401(k)?

There is a 25% penalty for not taking RMDs from an inherited 401(k). However, if the mistake is corrected within two years, the penalty may be reduced to 10%.

How are inherited 401(k) distributions taxed?

For both spouse and non-spouse beneficiaries, distributions from inherited 401(k)s are subject to income tax. This means the beneficiaries pay taxes based on their current tax rate for any distributions or withdrawals they make.

What happens to a 401(k) with no designated beneficiary?

A 401(k) with no designated beneficiary is automatically inherited by the account holder’s spouse upon their death. For those who are unmarried with no designated beneficiary, the 401(k) may become part of their estate and go through probate with their other possessions.

Do non-spouse beneficiaries have to withdraw inherited 401(k) funds within 10 years?

If the 401(k) account holder died in 2020 or later, non-spouse beneficiaries generally have to withdraw all the funds from the inherited 401(k) within 10 years. However, there is an exception for eligible designated beneficiaries (which includes a spouse, a minor child, a beneficiary who is chronically ill or disabled, or a beneficiary who is not more than 10 years younger than the account holder at the time of their death). These eligible designated beneficiaries are exempt from the 10-year rule and can instead take distributions over their lifetime if they choose.