Rollover possibility?
Husband age 50 dies in 2007 with 401k plan balance of $125k. Beneficiary form lists wife as beneficiary. Before she has a chance to rollover the 401k plan and or name new beneficiary she dies in 2008.
Only heir is her son age 18.
Question: Since mom died before rolling over 401k plan or naming beneficiaries is acct balance payable to estate and does the entire acct have to be liquidated within 5 years? The 401k plan balance was included on mom’s estate tax return
Thanks as always for your help.
Howard
Permalink Submitted by Alan Spross on Thu, 2008-10-16 23:26
Howard,
The plan document would have to be checked to see what default provisions are contained with respect to successor beneficiaries. The estate would be a logical guess, but only a guess.
If the estate actually is the default beneficiary, then the 5 year rule would apply at best or perhaps the plan even has a more restrictive lump sum requirement. If her estate is the default beneficiary, hopefully she at least has a will naming her son as beneficiary, so he will receive the funds even though he will not be able to stretch out the distributions.
If estate taxes are due on her estate, then the estate beneficiary will get an possible IRD deduction for the portion of the taxes due to the IRD assets inherited.
Permalink Submitted by mk foss on Thu, 2008-10-16 23:29
Whenever you are dealing with a qualified plan (like a 401k) the plan document provisions “trump” the IRS regulations.
Since the spouse was the beneficiary when the participant died, no contingent beneficiary of the participant would be considered.
Typically 401k plans offer lump sum payments only – not a problem for a spouse beneficary who can roll over the proceeds. The 2006 Pension Act “nonspouse rollover” provision was enacted because nonspouse beneficiaries were often cashed out when the participant died and incurred large tax liabilities.
You’ll need to work with the plan custodian to see what heppens to the proceeds. They should have been included in the spouse’s 706, so there may be an estate tax deduction for IRD to help offset income taxes incurred.