The rules of 401K distributions are complex. The type of 401K will determine tax liability for the estate and the beneficiary. It is the duty of the executor of the estate to determine the facts of the 401K. If it is a typical 401K, it is necessary to know the age of the deceased. If he is younger than 59 1/2 there will be a 10% early withdrawal penalty. You should contact the executor right away and have them roll it over into an IRA account in your name. Since you are on Social Security and not at full retirement age you may have to pay an early withdrawal penalty if you take the money and neither you nor you sister are 59 1/2 yet. If Social Security has been your only income, you will be required to file a tax return for the year beginning with the first distribution. You are not required to take it in a lump sum if you roll the 401K over into an IRA. You also have the option of having the executor roll it over into a Roth IRA and have the estate pay the taxes from the distribution (which means less money will be available in the Roth than was in the 401K). However when you start drawing the funds, the taxes would already be paid, and except for the earnings the distributions would be tax free. You need to be in contact with a good Financial Planner (Charles Schwab, Edward Jones, Ameriprise Financial or and independent financial planner) who can go through the options with the executor of the estate and you. You should not delay in this as time is of the essence. The longer you wait the more difficult the options get. You can talk to a financial planner who belongs to a company like those named who have offices in all states. Once you understand your options you can then find out who the administrator (executor) is and make them aware of what your wishes are.

I didn't know the 10% early withdraw applies when the deceased is younger than 59 1/2 which my sister was. I will roll the entire amount into my roth or traditional IRA whichever is the best way to go. I do plan on purchasing a home next year and using some of the money. I am 63.