401k versus IRA (Non-Spouse Benf.)
A decedent passed at age 54. He has both a TIRA and 401K. Are the inheritance rules (options) for his non-spouse beneficiaries different (between IRA and 401K) in any way ? If so, How? Thank you.
A decedent passed at age 54. He has both a TIRA and 401K. Are the inheritance rules (options) for his non-spouse beneficiaries different (between IRA and 401K) in any way ? If so, How? Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2019-11-08 04:28
The RMD requirements are the same if the beneficiary is the sole beneficiary of both plans, unless on the outside chance the 401k has a 5 year rule requirement, but even then the 5 year rule can be avoided by doing a direct rollover to an inherited IRA by the end of the year following the year of death. One difference here is that the beneficiary has the option to convert the 401k to an inherited Roth IRA (would be taxable), but that option is not available for the inherited IRA. Probably best to do a direct rollover of the inherited 401k to an inherited IRA, and if the RMDs divisors are the same these could be combined into a single inherited IRA. Most important thing to know is that the beneficiary cannot do any 60 day rollovers, the accounts can only be moved to another custodian by a direct trustee transfer.
Permalink Submitted by Scott Carbaugh on Fri, 2019-11-08 18:24
Thank you. What if decedent had 4 non spouse beneficiaries (in this case… children)?
Permalink Submitted by Alan - IRA critic on Fri, 2019-11-08 20:02
They should each request a direct rollover to an inherited IRA they have set up with the IRA custodian if their choice and have those custodians do a direct rollover of their shares to the inherited IRAs. If done by the end of the year following the year of death they will each be able to use their own age for annual RMDs. If by chance the plan required the 5 year rule, or required a lump sum distribution, this would avoid it. The plan cannot deny this direct rollover to an inherited IRA.