401k beneficiary question
I have a client who is remarried both have kids from previous marriages and we live in a community property state. My client is speaking with his attorney who has recommended that the current spouses beneficiary interest be listed as a residual trust that she will have life use but once she passes it goes to his kids from previous marriage. I questioning whether if in that trust that it can still be held as an IRA and how distributions are calculated. Client is currently in RMD and spouse is 67.
Permalink Submitted by Alan - IRA critic on Tue, 2016-08-16 19:48
The funds are currently in his 401k, and is he planning to roll it over to an IRA fairly soon? The trust would only be the beneficiary listed on the IRA agreement or 401k plan. Most trusts are qualified for look through treatment and since the spouse is probably the oldest beneficiary of the proposed trust, the RMDs after client’s death would be based on her single life expectancy. Of course, that RMD would be higher than if she inherited the plan outright and rolled it over, so there is an income tax price to be paid for protecting his child’s interest in this account. As for the CP aspect, it would be difficult to determine how much of this account, if any, is community property since it is likely that some contributions made to the plan were made before their marriage.