If I have a daughter and grandson as beneficiaries on my retirement account what is the best way to keep them from incurring tax liabilities?

[Sedutra]

My daughter is over 30 and my grandson is currently 17. Can they just withdraw from the retirement account on my passing and have the taxes taken out first? I have a 403(b) and a Roth account.  Optionally could they just transfer to their own 401K without incurring taxes?

[Jennifer_A]

Roth distributions are not subject to income tax because the contributions have already been taxed and the Roth designation says the earnings are tax free.  Distributions from the Roth will be required when the participant passes away.

However, the 403(b) plan is a tax deferred account meaning that the contributions have not been taxed but the earnings will be taxed once distributed.  The tax code does not allow for a rollover to a non-spouse beneficiary.  However, it does provide some options outline below for account holder's who pass away in 2020 or later:

1. Your daughter is a non-spouse, eligible designated beneficiary and may

A. Take taxable distributions over 10 years or 

B. Take taxable distributions over "the longer of their own life expectancy and the employee's remaining life expectancy"

2. You grandson is a non-spouse, designated beneficiary meaning that he can take taxable distributions over 10 years.

Further reading can be found at the IRS 

[Andrew_W]

The 403(b) account (assuming it is pre-tax) generally will have to be distributed within 10 years of being inherited by the beneficiaries. As either beneficiary you mentioned is not your spouse, they are not able to roll over to another retirement account, it must be distributed. It can be withdrawn at any rate as long as the full amount is withdrawn within 10 years. The financial institution holding the account can generally process tax withholdings as part of the withdrawal process, this should be discussed with them. Alternatively, the beneficiary can pay estimated taxes separately: Estimated Taxes: How to Determine What to Pay and When 

Generally, inherited Roth accounts can be withdrawn tax-free by the beneficiary.