In the US, when some one retires, what happens to his funds in K401(k), IRA and Roth IRA?

Question

1) Can he do what he likes with the money or are there special restrictions, in exchange of the tax privileges received?

2) Also when the person finally dies, can he bequeath all what is left to his inheritors or only a certain percentage?

In UK, when we retire, we can only draw 25% of our retirement funds to do as we like. The rest we must use to buy an annuity, which leaves nothing after death. This our nanny state says, is so that people cannot spent all the money unwisely and become a burden on the state.

Answer 1

Theoretically, in the states, we can do whatever we want to with the money....even before we retire.

Here, if you take money out before you are 59 1/2, there are taxes plus a 10% penalty. If you wait until after you are 59 1/2, you pay taxes on the Traditional IRA and the 401k but not the Roth. Proceeds from a Roth if you are 59 1/2 are not taxed at all.

Now, liquidating your retirement all at once and going to Vegas is not the smartest idea. Most people take the money out as they need it. Even if they don't need it, once you reach 70 1/2, you have to start taking some out.

Answer 2

Also, these accounts have beneficiaries listed. If you die, the money goes to the beneficiary. Doesn't go thru probate.