• What happens if you are the beneficiary of someone's 401k?

• Can your child be your beneficiary?

What happens if you are the beneficiary of someone's 401k?

Taxes can take a hefty chunk out of the amount you inherit. First, you must pay income tax on the entire amount. The total amount is also subject to estate taxes.

Rollovers are not flexible either. As a beneficiary, you generally aren't allowed to keep the 401(k) money in the employer's plan and you also can't roll over the money to your own 401(k). But if you are the spouse of the deceased, you can roll the 401(k) into an IRA. See your professional tax advisor for more details on rollovers.

In many cases, yes. You simply designate your child as your beneficiary on your 401(k) or IRA account. It may be more difficult with company-sponsored retirement plans. If you are married, your spouse is automatically your beneficiary- no matter who is actually named on the account. To change that designation, your spouse must waive the right to the account in a notarized statement. Children cannot be named beneficiaries of traditional pensions.

If your beneficiary is a minor, be sure to consult a lawyer about naming a custodian in your will or establishing a revocable living trust rollovers. If you don't decide who should manage your child's inheritance until he or she is an adult, the state will do it for you.