The above discussion covered the general rules as to the withdrawal of retirement plan distributions both before and after you die. Unfortunately, this general rule doesn't apply to money in a retirement plan. Life insurance proceeds paid in a lump sum are tax-exempt. However, if they are paid in installments, the interest element is taxable. The value of a stock bonus is taxable when received as ordinary income, less unrealized appreciation and after-tax investment.
Any appreciation is taxable as capital gain when the stock is sold.
No other heir can roll over from your account. There s no early withdrawal penalty on what your heir withdraws after your death, even if the heir is under age 59 . But if your spouse is your heir and rolls over your retirement account to his or her IRA, a withdrawal from the IRA while under 59 is subject to the penalty unless one of the exceptions applies. The federal estate tax isn t a major problem for most Americans, Only about 1 in every 100 who die in any year leave an estate that s hit by estate tax. But the larger a taxpayer's retirement account, the more likely it will be cut down by the federal estate tax on top of the federal income tax described above.