(This article originally appeared in the June 2024 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)

Most of the rules that apply to inheriting individual retirement accounts (IRAs) are similar if you are inheriting 401(k) or Thrift Savings Plan (TSP) accounts. But there are a few key things to know about inheriting these accounts tied to the deceased owner’s workplace.

[RELATED: Prepare Your Heirs: 5 Tips for Passing on Retirement Accounts]

401(k) Retirement Plan 

The rules for a company’s 401(k) plan are spelled out in the plan document. The human resources or benefits department of the company can provide this document, which governs that particular company’s 401(k) employer retirement plan.

Not every company will offer the same features and rules in their 401(k)s. And that can be true for the rules that govern what happens to an account when an employee dies.

For instance, some 401(k) plans might allow a surviving heir to keep money in the 401(k) plan, while other plans will require the money to be rolled out. If the heir can keep the money in the plan, the account will be subject to the rules in the governing plan document. For instance, the plan document might require distributions at age 70½ instead of the later required minimum distribution age of 73 that applies to IRAs.

“Pay attention to the 401(k) documents,” said Maggi Keating, CFP®, a financial planner at FBB Capital Partners and the spouse of a retired Marine Corps colonel. “That drives the rules.”

[RELATED: Bonus? Inheritance? Big Tax Refund? Put Your Lump-Sum Payout to Work]

Nonspouse heirs can roll the money into an inherited IRA; spouse heirs could choose to roll the money into retirement accounts of their own. Rollovers are nontaxable events, whereas if the money is immediately distributed to the heirs out of the 401(k), those distributions would be taxable if the 401(k) holds pretax money. Heirs can choose to roll a traditional 401(k) into a Roth IRA, but that will be a conversion and thus a taxable event.

Thrift Savings Plan

For heirs inheriting a TSP account, there’s a different process. For surviving spouses, a beneficiary participant account will be set up in the surviving spouse’s name by TSP. The spouse can choose to retain that account or roll it over to an IRA or employer retirement plan of their own.

A nonspouse heir cannot retain a TSP account. The money being inherited must either be distributed to the nonspouse beneficiary or rolled over to an inherited IRA. Rolling money to an inherited IRA is a nontaxable event, while any distributions would be taxable if the inherited TSP contains pretax money.

[FROM TSP.GOV: Beneficiary Information]

Again, Eric Bronnenkant, CPA, CFP®, head of tax at financial firm Betterment, said an heir could choose to convert the inherited TSP and that conversion would be a taxable event.