Minimum Distribution Requirements
I am working with a widow who’s husband died a few years ago. The facts are they owned a company they started 15 to 20 years ago. Approximately 10 years ago they installed a 401k plan. When the husband died the wife did not rollover the 401k into her name. He died at 73 or 74 and did not take out any minimum distribution requirements. What are the implications?
Permalink Submitted by mk foss on Wed, 2011-06-08 16:43
Even though he was still working at age 70.5 Minimum Distribtutions were required because he owned more than 5% of the company. There is a potential 50% penalty for the missed distributions each year. The IRS can waive the penalty upon request if all of the missed distributions are withdrawn and the reason for missing them is provided. The reason should be a good one – like the participant was elderly and didn’t receive good advice; the participant wanted to avoid income taxes – would be a bad reason.
If the surviving spouse chooses not to handle the original participants missed distributions, she should at least start taking distributions ASAP. She could take out all that were missed since the husband died and request a penalty waiver. No distributions were required for 2009 so she gets a free pass on that year.