Options when client (non-spouse) inherits 401(a) and 457 plans

Submitted by Jerilynn Blackstone on Fri, 2013-06-21 00:34

My client (who is 45)inherited a 401(a) and 457 plan from her mother who died in April of this year and who had been taking RMDs. What are her options?
1. Continue to maintain the plans and take distributions over her life-expectancy? If so, can she still take more than the RMD in any year? No “under 59 1/2 penalty?
2. Roll each of the plans into a separate Inherited IRA. If so, is she required to take RMDs immediately?
3. Roll one or both plans into a ROTH IRA and pay the tax, but no “under 59 1/2 penalty?
4. Take a lump distribution from one or both plans and pay the tax ,but no “under 59 1/2 penalty?
Is there any possibility of a rollover to a non-Inherited IRA that does not require immediate withdrawals?



Submitted by Alan - IRA critic on Fri, 2013-06-21 04:15

  1. She can transfer the death benefits to an inherited IRA and begin life expectancy RMDs, and must also complete her mother’s RMD for 2013 if not satisfied before the transfer. However, if the 457 is a non govt 457, it cannot be transferred to an IRA and she will have to check with the plan to determine her RMD options. Key date is mother’s death relative to the RBD, as RMDs can be taken prior to the RBD.
  2. If a govt 457, the benefits can be transferred to separate or the same inherited IRA as the 401a. Her life expectancy RMDs must start no later than 12/31/2014 and the transfer must be done prior to that date to assure life expectancy RMDs.
  3. She can also transfer to an inherited Roth IRA, which of course would be taxable. The same considerations for doing a conversion would apply, mostly driven by the tax rates for the conversion vrs those in her retirement.
  4. There is never a penalty on death benefits no matter what she does, since she cannot roll over to her own IRA. This is true for distributions directly from the plans OR from an inherited TIRA or Roth IRA.

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