Many employer plans such as 401k's and 403b's are not very tax friendly at death.  Many of these plans actually cash out a non-spouse beneficiary on the death of the account holder.  Large employer plans send a check out to the beneficiary creating an immediate taxable event.  This is the primary reason most investors do a direct rollover to an IRA and take advantage of the the "stretch-out".

A Stretch IRA is not a special type of IRA account. A Stretch IRA reflects an approach to estate planning that attempts to maximize the tax-deferred growth potential (or tax-free it it's a Roth IRA) of IRA assets by leaving them in the IRA for as long as the law permits.

Even though the tax rules allow the stretch option for beneficiaries of 401(k) and 403(b) plans, most companies don't permit it. The reason is simple -- the stretch can take place over decades. If a company allowed that, then it would be responsible for all of its administration. There isn't any benefit to a company to do so, while it exposes it to potential liability.

Instead, most company plans will cash out the beneficiaries at the death of the employee. The good news is that a surviving spouse can always roll over an employer's retirement plan into his or her own IRA. The bad news is that beneficiaries, such as your children and grandchildren, cannot. However, upon leaving an employer, by transferring your 401(k) assets into an IRA provides the ability for these beneficiaries to receive payments from an inherited IRA during their lifetimes.