Non-spousal beneficiaries of 401(k)

Submitted by Stephanie Hancock on Fri, 2013-06-07 01:59

Father, aged 50, died in 2013. No named beneficiary on 401(k) nor on IRA accounts. No will. On 401K, employer will allow distribution to estate of father (with a tax id for estate) or to each of the children’s tax ID number for rollover. They may allow a trustee to trustee transfer, if i can show them language. Where can I find language stating that it is now mandatory or IRS regs? Also, where is the language that states the 60 day rollover is not an option?



Submitted by Alan - IRA critic on Fri, 2013-06-07 19:51

  • This article will address many of the issues: http://www.morningstar.com/advisor/t/45786662/estate-transfers-ira-to-beneficiary.htm. Treat the plan as the owner’s IRA and ignore the estate’s spousal beneficiary.
  • It is NOT mandatory for the plan to do direct rollovers to inherited IRAs because there are NO designated beneficiaries in this case. The ultimate beneficiaries are a function of the plan’s default beneficiary provisions, and if father’s estate is such default, then the state intestate provisions will determine the beneficiaries. However, the 5 year rule will apply here because the estate is the actual non designated beneficiary and father passed prior to his RBD.
  • The plan options therefore appear to be either no direct rollover to inherited IRAs or direct rollovers will be allowed, but in either event the 5 year rule applies. If the plan does not offer the rollover, it is very likely that only a lump sum distribution will be required.
  • A 60 day rollover has never been an option for distributions to a non spouse beneficiary, although it is a proposal for tax legislation to allow it. Again, it would not change the 5 year rule, but could be used to avoid a lump sum distribution taxable in a single year.

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