Inheriting a nest egg is about to get more lucrative because of a law that lets more people take over 401(k)s without a big tax hit.

Those who want to take advantage of the windfall through rules that kick in next year should proceed with caution, though, because a few special steps are necessary to get it right.

Until now, only a spouse could roll over 401(k) money from the account of a deceased person without paying taxes on it immediately. Under the new regime, a son or daughter, domestic partner or even a parent will be eligible for a similar tax benefit.

Enacted through a provision of the Pension Protection Act of 2006, passed in August, the law could raise the amount of money people save over the years, besides shielding them from taxes up front. It becomes effective at the beginning of 2007.

"I think it's the biggest single provision in the tax law," said Ed Slott, a CPA and author of the book "Parlay Your IRA Into A Family Fortune." "Most people don't realize the impact of it, the amount of money that can stay in a family."

Typical practice now is for a beneficiary who is not a spouse to cash out of a plan immediately and be taxed on the money. If the amount inherited is large enough, it can even mean a double whammy of taxes along with a bump up into a higher tax bracket. A spouse, on the other hand, can roll the money into his or her own IRA and let it grow there tax-free until age 70 1/2.

To get the new tax break, a non-spouse beneficiary has to go through a critical extra step. An account known as an inherited IRA must be set up in the name of the deceased through a so-called trustee-to-trustee transfer.

For instance, after the death of John Doe Sr., an inherited IRA account would be set up in his name, and designated as being "for the benefit of" John Doe Jr., his son. This step would allow the trustee-to-trustee transfer that shelters the 401(k) transfer.

"It's going to take a while for advisers and custodians to get their arms around this," said Robert S. Keebler, a partner at Virchow Krause & Company, a law firm in Green Bay , Wis. "CPAs and lawyers should be cautioned to take care."

To set up the new IRA, beneficiaries can rely on an adviser or do it themselves. Justin Ransome, a partner in the Washington, D.C., national tax office of Grant Thornton LLP, an accounting and tax-advisory firm, said a beneficiary may need to send a letter to the former employer of the deceased, along with a death certificate, instructing it to issue a check in the name of the institution that will be the new trustee of the account.

"If the check is issued directly to you, you won't be able to take advantage of the tax deferral," Ransome said.

Another point to remember is that the new rule doesn't give children, parents or partners as much freedom as spouses will continue to receive. A big difference is that, unlike a spouse, they can't leave all money in the new account until age 70 1/2.

Instead, non-spouse beneficiaries are required to withdraw sums regularly in amounts dictated by an IRS table on life expectancy. Withdrawals start the year after death and the beneficiary must take a minimum distribution every year, according to Slott. "You can always take more, but you must take the minimum," he said.

The new provision essentially standardizes the treatment of 401(k) plans and IRAs, according to accountants and tax planners. Until now, there was a disconnect between how money was handled depending on whether it was in one or another of these vehicles, said James M. Delaplane Jr., a partner in the law firm Davis & Harman LLP.

"The accident of whether you as a beneficiary inherit money that was in a 401(k) versus an IRA shouldn't result in dramatically different tax treatment," Delaplane said.

New rollover rules had been in the works since 2002, and showed up on several legislative initiatives before finally getting passed. The gay and lesbian community, in particular, backed the change strongly because it extends tax breaks to domestic partners.

"It affects the community profoundly," said Lara H. Schwartz, legal counsel for the Human Rights Campaign, a group that represents gay and lesbian people, among others. Getting the tax treatment has been a big concern because "the treatment of surviving same-sex partners is unfair and problematic," said Schwartz.

Whether applied to a domestic partner, child or parent, the change could mean big savings for many people. A 30- or 40-year-old who lets the inherited money grow, taking only minimum required distributions, could end up withdrawing more than 10 times what he would have before, according to Slott. The huge increase comes from the ability of the inherited IRA to defer taxes while its growth compounds.

Keebler, of Virchow Krause, said the change could have a "multi-billion-dollar effect, with all the boomers inheriting from their parents.

"Say you inherit $300,000 in a 401(k)," Keebler said. "They give you a check and you have to pay tax on it. If instead you could have created a stretch IRA, or a direct transfer to a properly titled inherited IRA, you only have to take distributions based on life expectancy, and that $300,000 could be worth $3 million or more."