Inherited 401(k) plan

Submitted by walt mooney on Wed, 2015-01-21 01:33

Son, age 65, dies leaving his 401(k) to his mother age 94 who does not want nor need the money. What are her options? Also if she dies and has named her daughter, age 67, as her beneficiary, what are the daughter’s options?



Submitted by Alan - IRA critic on Wed, 2015-01-21 02:15

  • Age 94 only has a 4 year life expectancy stretch, so the mother should elect the 5 year rule as it provides more flexibility and an extra year before the account must be drained. This applies to the 401k plan or to an inherited IRA created by a direct rollover. Her successor beneficiary just needs to complete the RMD schedule of the mother, so the inherited IRA or 401k plan must be drained by the same date. Either the mother or the daughter also has the option of rolling the 401k to an inherited Roth IRA if the relative tax brackets suggest an advantage, but this will not extend the stretch.
  • With respect to disclaimers, should mother disclaim, the plan will go to the default beneficiary under the plan unless a contingent beneficiary was named. The default is probably son’s estate if not married, although it also might be his children if he has any. If the mother wants the daughter to receive the death benefits though, she will probably have to accept the plan and name daughter as her successor beneficiary.

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