combining inherited 401(k) and R/O IRAs
Is there any reason why a beneficiary of a young spouse’s 401(k) should not roll over this account into an existing R/O IRA account? This young person is attempting to combine individual 401(k) from previous employment, inherited 401(k) from spouse, and existing R/O IRA accounts.
Permalink Submitted by mk foss on Tue, 2008-12-16 21:36
The reason that a young spouse may want to delay a rollover is the ability to withdraw amounts penalty free before age 59.5. Ultimately, rollover is the answer.
You should check with the plan administrator as to the ability to take periodic payments from the qualified plan. Some plans that are very restrictive and more generous when it comes to a surviving spouse.
Permalink Submitted by Catherine Turner on Tue, 2008-12-16 23:54
This is a young spouse where the decedent was young as well, as stated. There is NO desire to access the dollars. In the same light as it would not be advisable to mix contributory IRA dollars with IRA R/O …this was the direction of my question…..combining these various pools of dollars…..I am wanting to know if there is anything to preclude me from doing so?
Permalink Submitted by Alan Spross on Wed, 2008-12-17 00:22
There is no downside of combining these accounts if you are not concerned with early withdrawal issues.
Since these are all rollover accounts, they will have unlimited creditor protection in bankruptcy. If there are no after tax dollars in any of these accounts that would be rolled over, the combined account would still be fully eligible to be rolled into a new employer plan that accepts such rollovers, since all 3 sources of your combined account would make it tantamount to a “conduit” IRA.
Access to the dollars could be a concern as posted earlier. While the survivor may have no intent to access any of the funds at this time, there are many years before they reach 59.5, and conditions could change, especially when you see all the shoes dropping in the current financial sector and economy. Moreover, a young beneficiary also has many years to go before a 72t plan would be viable because of their inflexibility and requirement to continue until age 59.5.
Note that if the survivor rolled the spousal 401k into an inherited IRA account, there would be no RMD requirement until the decedent WOULD have reached 70.5. But the funds could be withdrawn without penalty if needed. It would be safer to keep the inherited 401k separate just to keep these options open. Ownership of that inherited IRA can be assumed at any time the survivor wants. Bankruptcy protection for inherited IRAs could be problematical, however.