401k deceased owner non spouse beneficiary
I have a client who’s ex is deceased and their children were named as beneficiary on his 401k. The ex died 2 years ago and they deferred payments under the 5 year. Now she would like to transfer the balances into a Beneficiary IRA, can this be done since we have past the Dec 31 year after date of death.
Permalink Submitted by Alan - IRA critic on Tue, 2013-04-16 18:50
Jon,The inherited IRA rollover needed to be completed by 12/31/2012 in order to preserve the life expectancy option from the inherited IRA. The beneficiaries can still do a direct rollover to inherited IRAs, but the 5 year rule must apply for each beneficiary’s inherited IRA accounts (Ref Notice 2007-7). Since the 5 year rule applies, the entire balance can be included in the direct rollover and the plan should not require the distribution of any RMDs. Even though the 5 year rule will apply, the beneficiaries may still be well advised to break up the distributions over the 4 tax years remaining under the 5 year rule to avoid exposure to higher brackets. Either or both could elect an inherited Roth IRA as an option. The 5 year rule would apply for distribution, but the bulk of the taxable income would be in the year of the direct Roth rollover.