60 day rollover from beneficiary acct non spouse
Hello:
I recently had a client who passed away, and had a 401k. After I counseled the client not to remove the $ from the 401k, she decided to take the funds. After she filled out the beneficiary ppwk, the funds moved from the deceased spouse’s 401k to a beneficiary acct titled in the non-spose beneficiary’s (the daughter who is now 18 yrs old)name and SS number. From there, the non-spouse daughter made a distribution of the funds by making the request in writing , with a ck made payable to her personally. After having done this, the daughter had regrets because her college explained she could hurt her chances for financial aid based on the distribution, so she now is looking to do a 60 day rollover. She is within 60 days of when the check was issued.
my questions:
Assuming the non spouse beneficiary rolled over the entire gross dist to a trad IRA within 60 days from the check date, would this qualify as a 60- day rollover even though she was a non-spouse beneficiary (Although the orginial source of funds was the deceased the order went from the decased’s 401k to a acct titled in the beneficiary’s name and SSN and then distributed to the beneficiary)?
Permalink Submitted by Alan Spross on Fri, 2009-10-30 15:52
Funds distributed to a non spouse beneficiary cannot be rolled over. These funds must travel exclusively by direct rollover if from a qualified plan or direct trustee transfer if from an inherited IRA. Once a check is issued to a non spouse, there is a taxable distribution and the IRS has never waivered on this issue.
This error is probably the most frequent costly error occurring with respect to retirement plan distributions. Perhaps the tax code will be changed at some point, but for now there is no rollover option available to a non spouse.