I think that this may have changed, but it used to be that the 401K owner died, and the 401k was inherited by someone other than the spouse, that it all was taxed immediately instead of being passed on as an inherited IRA which would cause much higher taxes. I think that this has changed but if you choose to keep it in a 401K you should verify that this is no longer a problem.

Actually, it used to depend on the provisions of the particular plan. Some plans allowed non-spouse beneficiaries to take periodic payments, allowing for taxes to be paid over time, as the money was removed, while others required that the money be removed (and therefore taxed) within a certain time period.

Provisions in the 'Pension Protection Act of 2006' now allow a non-spouse benficiary to rollover a qualified plan, such as a 401(k), into an 'inherited IRA'. The beneficiary is subject to RMDs on the 401(k), but this guarantees that someone who inherits a 401(k) or other qualified plan has an option about how to structure the taxes, rather than being dependent on the provisions of the plan.

AJ