401k Plan Beneficiaries

Submitted by Jason Hochstadt on Thu, 2016-04-21 16:31

Hello,

I want to confirm that if an individual does NOT name a 401k Plan beneficiary, such asset would be required to be withdrawn within 5 years (Federal law). If married, spouse must be the primary beneficiary (unless a waiver is signed); however, in the above instance the spouse must withdraw the funds within 5 years. If the spouse is NOT named the primary beneficiary, what happens to the individual deceased’s 401k – e.g. does it remain and the spouse has the right to take distributions over up to 5 years as the beneficiary (by notifying the Plan Trustee of such)? Does the 401k Plan asset flow thru/get paid to the spouse thru the estate, potentially subjecting the asset to creditor claims and possible tax liens/tax waivers required for the asset to be transferred to the spouse?

Thank you in advance for your feedback.

Jason



Submitted by Alan - IRA critic on Thu, 2016-04-21 16:51

  • A designated beneficiary does not have to be listed by name as long as it is clear who the beneficiary is. Therefore, under ERISA when the surviving spouse is required to be the beneficiary, that spouse is treated the same way as if they were listed by name, and the death benefit would not go to the estate. Therefore, they can stretch RMDs as a beneficiary or roll over the plan to their own IRA account and then take life expectancy RMDs.
  • For a single participant who did not name a beneficiary, the estate would normally be the beneficiary under the plan document. But the 5 year rule only applies if the participant died prior to their RBD; if the participant passed after the RBD and left the plan to his estate, the estate could assign the plan to the beneficiaries of the estate (per will) and those beneficiaries could take RMDs over the remaining life expectancy of the deceased participant.

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