Death of IRA Owner During the Rollover Process

Submitted by Andrew Paladino on Wed, 2017-12-06 19:37

Prior employer 401(k) balance is in the process of being rolled over to an new IRA account. The new account paperwork was signed. Beneficiary designations were done. The 401(k) company was contacted and a check was sent to the owner made payable to the IRA for his benefit. In the days after the contact and the paperwork signed, the owner passed away. The check was now received. Can the check and new IRA account paperwork be used to establish the IRA? I am getting conflicting answers. Some state that the check needs to go back to his 401(k). However, they state that they have closed his account.
Thank you.



Submitted by Audrey Mushinsky on Wed, 2017-12-06 20:29

Do you know if the beneficiaries changed at all between the original IRA and the intended rollover IRA? This would seem to be important.At first glance, it would seem that the rollover IRA account should be established because the paperwork was completed prior to the death of the owner, but an expert really should weigh in on this. Just make sure to keep an eye on the calendar for an answer, as you do not want rhe rollover window to close making the distribution fully taxable.

Submitted by Alan - IRA critic on Thu, 2017-12-07 00:24

  • The determining factor should be the date on the check. If before the DOD, the direct rollover check should be contributed to the rollover IRA, then the rollover IRA re titled in beneficiary format. If the DOD was prior to the check issue date, the check should be returned to the original IRA and voided resulting in the 401k beneficiaries inheriting the plan death benefit. Otherwise, the rollover IRA beneficiaries would inherit the death benefit. If the DOD was the same as the check issue date, then you have a gray area. Notwithstanding all this, it is very possible that the two account custodians might see this differently, or have operating procedures that do not mesh.
  • Use of the DOD relative to the check issue date as indicated above means that once the check is issued while the participant is still living, the direct rollover should proceed to the rollover IRA and that would conform to the plan 1099R. This includes the time in which the check is literally in the mail,  in decedent’s mailbox, or on decedent’s kitchen counter. 
  • The rollover window would not close within 60 days unless the check was made out to decedent personally. This is a direct rollover check that does not have a 60 day rollover deadline.

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