Inherited 401(k) RMD Question
Client is 71 years old and has zero tax deferred assets. Her husband died in January of 2015 and she inherited his 401(k) worth about $300K. He had not yet reached his RBD as he was only 67. No election has been made yet as to whether she will elect to roll the 401(k) into her own IRA or go ahead and remain as beneficiary to delay taking RMDs until he would have reached his RBD.
The issue is that we would like to begin conversions in 2015 to take advantage of what is likely her final year as MFJ.
Question:
If she rolls the 401(k) into her own IRA, does she have to take an RMD for the 2015 tax year? My instinct is that she does not, because the prior year-end balance of her TD assets was zero. I would like to confirm this.
Any help is appreciated.
– Robert
Permalink Submitted by Alan - IRA critic on Thu, 2015-02-12 20:35
No RMD is required for 2015 whether she rolls the 401k over to an inherited IRA, owned IRA, or keeps the 401k in place. However, if she rolls it to an inherited IRA there will be no RMDs until her husband would have reached 70.5, but if she rolls it to her own IRA in 2015 or 2016 then she will have RMDs starting in 2016 even if there is no 12/31/2015 balance. The RMD is due because she will be considered to have owned the IRA for the entire year of 2016.
Permalink Submitted by Robert Meyer on Thu, 2015-02-12 20:52
Thanks Alan – that’s right along the lines of what I was thinking.One follow up question for you:Would it be possible for her to convert a partial amount of the 401(k) (say, $100) directly to a Roth IRA and then roll the remaining $200K to an inherited IRA in order to delay RMDs until the year in which her deceased husband would have turned 70.5?
Permalink Submitted by Alan - IRA critic on Thu, 2015-02-12 21:01
Yes, that is possible. If she opts for the inherited TIRA, she must be sure to remember to roll that over as well by the end of the year he would have reached 70.5. Her RMD for that year would then be calculated from the Uniform Table rather than the single life table and would therefore be less. It will also protect the stretch for her own beneficiaries.
Permalink Submitted by Robert Meyer on Fri, 2015-02-13 17:13
Very good. Thanks for your help.