Disabled spouse 401k to IRA
Client’s wife is disabled, and getting SSDI. She has funds in former employer 401k. Client wants to move funds to an IRA. If the IRA is in her name there is the possibility it will lower his Medicare / Medicaid benefits (wife is going to need assisted living in the near future). His elder-care attorney advised him to move all assets out of her name (to maximize benefits), so he wants to move her 401k to an IRA in his name. Can this be done without incurring early distribution penalty or income tax? Client is 38 and wife is 41.
Permalink Submitted by Al Fry on Wed, 2008-04-30 19:07
No, it cannot go to an IRA in his name. The penaltywould probably not apply to a distribution, since she may meet the disability exception, which is similar the the SS disability definition.
Permalink Submitted by Alan Spross on Wed, 2008-04-30 19:12
This cannot be done. A spouse must be deceased before their retirement account can be rolled into the other surviving spouse’s account.
There are some planning possibilities with Medicaid trusts, but the look back period for those trusts is 5 years. In addition, states have different amounts that the other spouse is allowed to shelter, but that does not include assets that have been transferred from the Medicaid spouse within the look back period.
With respect to her disability, any distributions she takes from either her IRA or an employer plan should be penalty free due to the disability exception. SSDI approval suffices in almost all cases to get the custodian to code the distribution with the disability code in Box 7, but even if they do not, Form 5329 can be used to claim the exception to penalty due to disability.