Closing accounts
Different ways to cash out an account
Checks, transfers, and accounts that pass straight to someone.
Once a bank or brokerage agrees who should receive an account's money, there are usually a few ways to get it there. The options depend on who's receiving it and what kind of account it is.
| Method | How it works | Often used for |
|---|---|---|
| Check | The bank mails a check, usually to the executor or beneficiary | Smaller balances, or when someone doesn't bank with the same institution |
| Transfer to an estate account | Money moves into a bank account opened in the estate's name | Accounts with no beneficiary, settled through probate |
| Transfer to the beneficiary's account | Money moves straight to the beneficiary's own account | Payable-on-death and transfer-on-death accounts |
| Transfer in kind | Investments move as they are, without being sold | Brokerage accounts, to avoid selling and possible taxes |
Retirement accounts are different
Inherited IRAs and 401(k)s have their own rules. Beneficiaries often have the choice of moving the money into an inherited IRA rather than cashing it out, which can spread out the taxes. The rules depend on who the beneficiary is and when the person died.
Taxes
Cash in a bank account usually isn't taxable income to the person who inherits it. Interest earned after the death can be. Withdrawals from traditional retirement accounts usually are taxable.
Brokerage investments usually get a new cost basis when the owner dies, often their value on the date of death. That can lower taxes when they're eventually sold.