Inherited 401k transfer to Inherited IRA
A client inherited his sister’s 401k this year. She passed away at the age of 63 and the beneficiary is 60. Since she was under 70 1/2, can he do a direct transfer of the ENTIRE 401k account into an Inherited IRA without taking any RMDs? My understanding is that the first RMD is not due until 12/31/14, which is the year after the year of death. Thank you!
Permalink Submitted by Alan - IRA critic on Tue, 2013-08-06 20:20
Yes, you are correct. The transfer to an inherited IRA should include 100% of the funds since his sister passed prior to her first RMD distribution year. Client’s first RMD will be based on his age attained as of 12/31/2014 and must be distributed by that date. Client also has the option to roll any portion over to an inherited Roth IRA if he wishes. This can be done for non spouse inherited employer plans, but not for inherited IRAs. Of course, any portion rolled to an inherited Roth will be taxable and the inherited Roth will still require annual RMDs.
Permalink Submitted by Kathleen Covey on Thu, 2013-08-08 21:13
Similar to the question above – my client’s Father passed away on Aug. 12, 2012 at age 70 – my client, his daughter, is the beneficiary on his Profit Sharing Plan. Is it correct that she can transfer the assets of the Plan into an Inherited IRA and she must take a distribution before 12/31/2013 based upon her age? The titling on the Inherited IRA would be the deceased’s name; BDA her name?
Permalink Submitted by Alan - IRA critic on Thu, 2013-08-08 23:49
The difference from the earlier post is that your client’s father passed in 2012 rather than in the current year. He also passed prior to his required beginning date, so there was no RMD required of the decedent for 2012. Your client will have an RMD requirement from the plan for 2013, which must be distributed before the direct rollover to an inherited IRA. You are correct that the inherited IRA should include her father’s name as decedent and hers as beneficiary in no particular order. NOTE: She also has the option to convert all or part to an inherited Roth IRA if she chooses, but the amount converted would be taxed.