Inherited ira to a minor

Submitted by Michael Herman on Tue, 2019-02-26 04:46

I have a deceased 401k owner who named is only minor child the beneficiary. The child is 16 years of age, and the parents are divorced. The father passed with no will and the childs mother does not have conservatorship over the child, nor has she been appointed guardian. My question is can the 401k be transferred to a UTMA account to hold assets till child’s majority age?



Submitted by Alan - IRA critic on Tue, 2019-02-26 16:59

A guardian and UTMA account custodian needs to be appointed per state law, then the usual procedure would be to do a direct rollover to an inherited IRA for the UTMA/child. The plan must distribute RMDs no later than the end of the year following the year of parent’s death, but the direct rollover should also be done before that deadline to make sure that the RMDs can be strethed over the life expectancy of the child. If not, the 401k plan might be subject to the 5 year rule (assume parent passed prior to RBD). Due to the time involved here, an effort to seek guardian appointment should be started ASAP, as the 401k plan will probably not discuss options with anyone else.

Submitted by Bruce Steiner on Wed, 2019-02-27 02:16

  • Depending on state law, the plan may be able to transfer the benefits to an inherited IRA in the name of a custodian for the minor under the UTMA without the need for a guardian.  The attorney handling the estate should check the UTMA laws in the minor’s home state, the proposed UTMA custodian’s home state, and the state where the plan trustees are.
  • Since guardianships are cumbersome, depending on the nature of the other assets, the administrator may want to keep the estate open until the child reaches age 18.
  • Bruce Steiner

Submitted by Alan - IRA critic on Wed, 2019-02-27 03:00

I’m not sure what the plan is going to do to meet the 401(a)(9) RMD requirements if there is no UTMA custodian to distribute to. It’s possible that the plan provisions would result in the 5 year rule applying. If the balance is small enough that might not be a problem, but would have negative consequences for a plan balance of 6 figures +.

Submitted by Bruce Steiner on Wed, 2019-02-27 15:18

A UTMA custodianship isn’t an appointment like an executor, trustee or guardian.  Each transferor may make a transfer to a different UTMA custodian.  If permitted under applicable state law (the law of the state where the minor is, the law of the state where the custodian is, or the law of the state where the transferor is), the plan could select some adult person as UTMA custodian.  Presumably they would select a parent of the minor.  Some states have dollar limits on the amount that the holder of property belonging to a minor may pay to a UTMA custodian without court approval.

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