401k distribution
My client is 79 and has 900k in a CBS 401k. TD Amertrade is the custodian. Will his spouse have any options other than lump sum upon death?
My client is 79 and has 900k in a CBS 401k. TD Amertrade is the custodian. Will his spouse have any options other than lump sum upon death?
Permalink Submitted by Alan Spross on Tue, 2012-05-15 16:58
Yes, plenty of options.
1) Take inherited 401k distributions (not a good option)
2) Roll it over to an inherited IRA (only a good option if surviving spouse is under 59.5)
3) Roll it over to spouse’s own IRA (usually the best option)
All of the above are preferable to a lump sum distribution which will result in loss of future tax deferral and a huge income tax bill.
If the 401k hold highly appreciated employer stock, it would also be wise to consider NUA on those shares depending on the need to diversify and the need for current funding. If some or all company shares are selected for NUA, the rest of the account must be rolled over to an IRA in the same year (lump sum distribution). Once shares are in an IRA, NUA can no longer be applied. Surviving spouse can also use NUA on inherited shares, but there is no basis step up on the NUA amount.