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Retirement accounts are set up as TOD accounts

'Retirement accounts' (i.e. 401(k)s, 403(b)s, 457s, IRAs, etc.) can be set up with beneficiaries, but are not generally considered 'TOD' (Transfer on Death) accounts.

How are the (deleted) retirement accounts of the deceased treated when given to the beneficiaries, who are the adult children.

Can be one of several ways, depending provisions of the plan (for those accounts that are part of a plan), and on how the beneficiary chooses.

- Withdraw all the money out in a lump sum, having to pay any income taxes due on the lump sum for the year withdrawn
- Take the money out over the course of 5 years, having to pay the income taxes due to the withdrawals for the year they occur
- As an inherited IRA with minimum required distributions starting the year after the date of death, having to pay income taxes for the year the witdrawal is made

If the beneficiary were a spouse (which you excluded by specifying the benficiaries were children of the deceased), the spouse may also have the option to roll the money over into their own IRA, and not be required to take distributions until they reach the age for MRDs.

You may want to look at IRS Pub 590

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