@VolvoGirl
this is my understanding (and I do not prescribe to be an expert in this technical area)
spousal 401(K) beneficiaries have the option to
1) rollover to an IRA
2) maintain the account as an inherited 401(k) and take RMDs based on the beneficiary's life expectancy.
To answer your question, she can roll it over to an IRA, but that has consequences
The grandaughter's choices
a) granddaughter rolls $$$ to an IRA, then any distributions of those monies from the IRA will be subject to the 10% penalty until the granddaughter is 59.5 years old; there is no RMD until the grandaughter is 75 years old.
b) Granddaughter maintains the inherited 401k (or rolls to an inherited IRA). Granddaughter must begin RMDs now based on her current age. No 10% penalty on the RMD because it's an inherited 401(k) (or IRA). There is no "10 year" rule because she is a spouse.
For you, same thing. There is no 10% penalty to worry about and it's the same life expectancy table whether there is an inherited 401k or an IRA. Does the decision come down to the investment flexibility if the money is in the IRA versus the 401k and what the advisor fees would be if an IRA?
so it does not need to be separate (and I have edited my post above as I was too emphatic), but if under 59.5 years old certainly there is an advantage to maintaining separate accounts.
