inherited 401k
HI,
I WATCHED THE ED SLOTT VIDEO AND READ ALOT OF FORUMS AND POSTS BUT STILL HAVE A QUESTION ABOUT THE NEW PENSION PROTECTION ACT FOR NON SPOUSE BENEFICIARYS LET ME START BY SAYING THIS 401K HAS 390,000 IN IT AND IT WAS LEFT TO MY MOTHER WHO IS 66 SHE WANTED TO ROLL IT INTO A INHERITED IRA ACCOUNT BUT THE BANK SAID WE DONT PARTICIPATE IN THAT. YOU ONLY HAVE TWO OPTIONS LUMP SUM OR 5 YEARS. IS THERE NO WAY AROUND THIS OR SOME HELPFUL ADVICE BECAUSE MY MOTHER WAS GOING TO KEEP THE IRA FOR HERSELF AND GIVE EACH OF HER 3 CHILDREN 100,000 OF HER OWN MONEY BUT NOW WE DONT KNOW WHAT TO DO ……..
THANKS
Permalink Submitted by Alan Spross on Tue, 2008-02-26 21:13
It should not be hard to find IRA custodians other than banks to set up an inherited IRA for the non spouse rollover. But first she must be sure that the 401k plan will agree to the transfer, because it is optional for them as of now after some confusing IRS rulings on the subject. If they agree, she should check with some mutual fund groups or discount brokers such as Schwab or Fidelity. Above all, she should NOT take a distribution from the plan because she cannot roll it over and it will all be taxable to her.
The decedent probably passed prior to their required beginning date for RMDs and that will trigger the 5 year rule unless the transfer is done prior to 12/31 following the year the employee passed. Your mother would have to begin RMDs in that year also.
She also needs to be aware of gift tax rules if she intends to gift any person more than $12,000 per year, which is the current gift tax exclusion.
Permalink Submitted by rose otto on Tue, 2008-02-26 23:55
HEY
THANKS FOR YOUR FAST REPLY BUT LIKE I SAID THE BANK DOING THE DISTRABUTION SAID THEY DONT PARTICIPATE IN INHERITED IRA’S ONLY BENEFICIERIE OPTION WAS 5 YEARS OR LUMP SUM IF YOU DONT RECOMMEND THE DISTRABUTION I DONT SEE ANOTHER WAY WITH 2 OPTIONS IT SEEMS HOPELESS I CANT BELIEVE PEOPLE WORK THEYRE WHOLE LIFE LEAVE A LOVED ONE MONEY AND IT GETS TAXED 50% HOW IS THIS FAIR?
Permalink Submitted by Alan Spross on Wed, 2008-02-27 00:29
There are many people who were irritated by Congress’ provision in the PPA that made this voluntary, and also by the cutoff for deaths that occurred prior to 2006.
Please clarify, is “the bank” the former employer of whoever left the plan to your mother, or the administrator of that employer’s 401k plan? And how old was the employee who died? Was he still working or separated from service? What was the year of death?
Permalink Submitted by rose otto on Wed, 2008-02-27 00:44
hi
the deceased was 63 and was not working he passed on dec 13th 2007 he worked for jp morgan which held his 401k i assume they are the ones who said we dont participate because they are the ones who sent paperwork on how we wanted it to be funded thanks…
Permalink Submitted by Alan Spross on Wed, 2008-02-27 03:53
Ok, at least you have some time here for the bank to change their mind or for you to appeal the decision to a higher authority at the bank. The deadline for the transfer is 12/31/08. JPMorgan is a large firm not to be allowing the non spouse transfer, so I would wait until about August and then appeal the decision. The IRS may also not be done with respect to making a final ruling on this either.
If all else fails, at least if your mother withdraws 20% of the balance each year, it will prevent some of the escalation of her tax bracket that would otherwise occur if she took a lump sum. Good luck.
Permalink Submitted by rose otto on Wed, 2008-02-27 13:47
thank you i appreciate the time ..