First, Move It Without Detonating It

Everything below this subsection is about when to take the money out. None of it matters if you destroy the account in the first ninety days, which is entirely possible and happens constantly. Before you think about tax timing, do these five things in this order.

1. Ask whether the year-of-death RMD was taken.

If the decedent died on or after their required beginning date and had not yet taken that year’s required distribution, the beneficiary must take it, computed on the decedent’s schedule, for the year of death. Deaths in November and December are where this gets missed, because the beneficiary is at a funeral rather than reading plan statements. The final regulations automatically waive the IRC §4974 excise tax if you take the missed amount by the due date of your own tax return, including extensions, for the year of death—so if you find it late, take it and file rather than assuming the 25% penalty has already attached.

2. Read the plan document before you assume you have ten years.

The Code sets the outer limit; a qualified plan is free to be stricter, and many force a lump sum or a five-year payout on non-spouse beneficiaries. Moving the balance to an inherited IRA is often what preserves the full ten years of deferral—which is a reason to move promptly that has nothing to do with your opinion of the advisor.

3. Check for employer stock before anything leaves the plan.

Death is a triggering event for net unrealized appreciation, and rolling the account into an IRA destroys that treatment permanently (section “Net Unrealized Appreciation: The One-Shot Decision at Separation”). It is a one-way door and it is the first thing to look at, not the last.

4. Move it by direct trustee-to-trustee transfer only.

This is the one that ends people. A non-spouse beneficiary has no 60-day rollover. IRC §402(c)(11) permits exactly one route out of a qualified plan—a direct transfer from the plan to an inherited IRA. If the plan cuts a check payable to you, the entire balance is a taxable distribution in that year, taxed as ordinary income at your marginal rate, and there is no way to put it back. No penalty applies, because death is an exception; that is cold comfort on a seven-figure account. The generic advice for firing an advisor—have the new custodian ask the old one to liquidate the account and send the money—is correct for a taxable brokerage account and catastrophic here.

5. Title the receiving account exactly.

It must read as an inherited account: the decedent’s name, the date of death, and you as beneficiary—for example, Mary Castro, deceased 12/14/2025, IRA for the benefit of David Castro, beneficiary. An account opened in your own name is not an inherited IRA; it is a distribution of the whole balance, with the same result as a check.

Then invest—at the destination, not before. Sequence is the whole lesson, and it is worth more than any commission schedule. Consider a real case: a $40,000 cash balance sitting in a parent’s plan account, spotted months after the death. The beneficiary asks the plan’s broker to put it into a total-market ETF. The confirmation shows an $802 commission—2.0%, which is an ordinary number on a full-service equity grid (section “The opposite failure: full-service commission grids”). Weeks later the account transfers to an inherited IRA at a discount custodian, and because plans generally distribute cash rather than securities, the position is sold to make the move. The 2% bought a few weeks of market exposure and a sale ticket. The identical allocation, established at the destination after the transfer, would have cost nothing.

Do it in the other order: transfer first, invest second. Cash sitting in a plan for the three or four weeks a transfer takes is a rounding error against a decade of compounding, and it is certainly cheaper than paying 2% for exposure you are about to liquidate. The only reason to trade inside the old account is a genuine tax or plan constraint—employer stock, or a plan that will not transfer in kind something you want to keep.