Should I withdraw from my Roth or the inherited 401k first after retirement?

required minimum As soon as you receive an inheritance, it gives you all the hope in the world that you are in a better financial situation than you were previously. However, it also comes with a slew of questions around what you should do with this newfound money, especially how it impacts taxes. 

This is the exact case one Redditor is going through with a post in r/retirement, having received an inherited 401(k), Roth IRA, and stocks. This now begs the question of what to do with these accounts on top of the already $5,000 the original poster is set to owe. 

Surprisingly, the biggest question here isn’t all about taxes. Instead, it focuses on which account to withdraw from after retirement. 

The Situation 

At 63 years of age, this Redditor was fortunate enough to retire last December, but it was the month before that when they received news about this unexpected windfall. A family member left a surprising gift to the original poster and their siblings. At that time, they also learned that the family member had received capital gains that had been reinvested. 

Now, the Redditor is in retirement with their own 401(k), an inherited 401(k), a Roth IRA, and stock positions. All of these accounts are causing more confusion and leading directly to a question of which account the Redditor should withdraw from first. 

They think they should drain the Roth IRA before anything else and then take RMDs on the inherited 401(k), but they are unsure if this is the right move. 

The Next Step

Unfortunately, a few commenters on this Reddit post are right, indicating that the OP is leaving out a good chunk of information. First and foremost, the date the family member passed away is pertinent to understanding RMD distribution. 

To be more specific, the inherited IRA will need to be withdrawn within 10 years of the date the person passed away. So, if the death occurred this past November, it leads directly to the point that the inherited IRA is likely the first account to drain. 

However, this gets a little complicated if this person isn’t deceased, which would then allow the Redditor to leave the Roth IRA alone and let it grow tax-free. This would then have us turn our attention to the regular 401(k), which will also require RMDs, so why not use a little bit of this money now to reduce the distribution and tax burden that will start at 73? 

The bottom line is that it’s hard to provide a complete picture of what the Redditor should do without some additional information. Unfortunately, they don’t chime in and give any of the required information, so we’re left with a little guessing game. 

Get A Financial Advisor

Honestly, at 63 years of age and with a sudden influx of cash and accounts, the best step here is to do nothing without talking to a fiduciary financial advisor. This person can help guide the Redditor on the next best step regarding distributions, tax harvesting, tax-free growth, and more.

Yes, you can go to an online calculator like one commenter suggests with AARP, but if the Redditor isn’t super financially savvy, and we don’t suspect they are based on the question, then paying a financial advisor will end up saving them a ton of money and headaches in the long run. 

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