IRA options for 401k bene
Hi. A spouse has inherited a 401k plan from her husband and is now in her name. She has been told that if she now lists her daughter as the beneficiary of the 401k account and she passes, her daughter will be forced to cash out and pay taxes??? Does the daughter not have IRA rollover options? Thanks in advance.
Permalink Submitted by Alan - IRA critic on Thu, 2014-11-06 02:25
It is legal for the plan to contain these restrictions. IRS rules (Sec 829 of the PPA as amended in 2008) require the plan to offer direct IRA rollovers for the designated beneficiary (spouse), but do not allow direct rollovers for successor beneficiaries. Therefore, the spouse should do the direct rollover sooner rather than later to an owned IRA (inherited IRA if under 59.5). This will also allow the daughter to be treated as a designated beneficiary upon mother’s passing and therefore avoid a lump sum distribution.