The Estate of participant is 401K Beneficiary. Participant died before RBD. 5 yr rule on distribution and payment of taxes or 1 yr? Seems like I’ve seen 2 different rules when an Estate is the Beneficiary of a 401K.
So if a nonspouse beneficiary had been named instead as the 401(k) beneficiary, that person could have used a stretch IRA? Or could the employer force some different payout on them? The 5 year rule?The Secure Act that is in the news—is that type of legislation going to just address IRAs or also 401(k)s.Thank you.
Yes, if the non spouse beneficiary was designated on the 401k plan, the plan is required per WRERA (Dec, 2008) to offer a direct rollover to an inherited IRA. If this is completed by the end of the year following the year of death, the inherited IRA can be stretched regardless of what restrictions the employer plan contained regarding direct rollovers. The proposed retirement legislation applies to both defined contribution plans (401k) and IRAs, but does not affect 401k plan requirements of lump sum distributions when the estate is beneficiary.
Are there other retirement plans that might not get the 5 years if Estate is the beneficiary and decedent died before the rbd?
Plans can be more restrictive than what the IRS allows, which is why some do not even allow the 5 years. However, they cannot be less restrictive than what the IRS allows, which is the 5 year rule. Therefore, none can lengthen the 5 year rule.
so are IRAs the only qualified plans that are sure of getting the 5 yrs if Estate is beneficiary and rbd hasn’t passed? Or are there other plans that are sure getting the 5 too?
IRAs will get the 5 years, but even there it can sometimes be a hassle assigning the inherited IRA to the beneficiaries of the estate. The 5 years could still be used since IRA custodians do not force out distributions in a shorter time, but the estate would have to remain open which is also inconvenient. As for other plan types, while there can be individual exceptions, most 401k and 403b plans will require a lump sum distribution.
Permalink Submitted by Alan - IRA critic on Thu, 2019-05-30 21:11
The IRS allows the 5 year rule, however most plans require a lump sum distribution ASAP.