Inheriting 401k – no beneficiary designated.
My mother in law passed away last December. It was then discovered that when she inherited her husband’s 401k, she failed to fill out the beneficiary form. She did however, have a will and left everything to my wife and sister in law while also naming them co-executors. The plan moved the money into an account in her estate’s name in August. The entire estate is about $200k.
Are we able to close the estate, (approx. late November) while still taking up to 5 years to withdraw the funds?
If so, do we need to instruct the plan to move the money out of the estate account and split it between the two daughters?
Thanks,
Rob
Permalink Submitted by Alan Spross on Mon, 2008-10-20 19:07
You should not have to keep the estate open just to access the RMD schedule that applies in this case. The following link is a suggested letter from the executors to the retirement plan. However, you may encounter resistance from the plan administrator, who may try to force the estate to continue until the balance is distributed through the estate:
http://www.ataxplan.com/bulletinBoard/pdfs/FiducLetterWebVersion.pdf
With respect to the actual distribution requirement that now applies, that depends on the husband’s age at death, the elections available under the plan and what your mother in law elected. Do you have that information? The 5 year rule may or may not apply.
Permalink Submitted by Rob Ovel on Mon, 2008-10-20 19:40
My father in law passed away about 4 years ago but hadn’t begun to take any distributions yet. He was in his mid 60s. My mother in law hadn’t touched it in the last three years and was only 69.
I talked to the plan admin last week and they confirmed that we had five years to withdraw but they weren’t really giving out a lot of information. The attorney handling the estate was preparing a letter inquiring whether the plan would move the money out of the estate into names of the two daughters. She didn’t think that they would do that though and thought it would be impractical to leave the estate open 5 years. Therefore, when I called, I didn’t really press the matter of moving it into the names of the two daughters. I got a strange answer that didn’t make any sense when I asked him what would happen if the estate closed next month and the money hadn’t been withdrawn. They also said that they would withhold federal taxes on any money withdrawn even if the executor were requesting it to be put in the estate checking acct to prepare for the closing.
So the executors should call them and request that they move the money into the names of the beneficiaries of the estate? And if they decline, find a place that would handle a plan to plan transfer and draft a letter based on the one you sent me?
Permalink Submitted by Alan Spross on Mon, 2008-10-20 20:19
There should be no mandatory withholding because a distribution to a non spouse OR estate is NOT an eligible rollover distribution. The 20% mandatory withholding only applies to eligible rollover distributions.
Based on the date you provided, the 5 year rule would apply. But since this is an employer plan without a designated beneficiary, it cannot be transferred to inherited IRA accounts. And there is no other qualified plan that would accept a transfer. Therefore, you are stuck with this particular plan administrator, but there is no reason that they could not set up separate accounts for each estate beneficiary in which the 5 year rule could be executed. That said, I do not believe there is any way you can prevent them for issuing a lump sum if that is what the plan document indicates. But there should be no withholding unless you want the withholding.