Death after receiving direct rollover distribution check.
To start, I have come across this related article on the website here which gives me hope this can work out the way I want but it’s certainly a unique scenario.
My mother recently passed away after receiving two 401k direct rollover distribution checks but not having the chance to deposit them. They are the full account amounts and RMDs have not started yet. The checks are made payable to “Apex Clearing FBO Mom’s Name” which is how the newly opened IRA account instructed to do.
My sister and I are the beneficiaries on the originating 401k accounts, the destination IRA, as well as the will regarding all assets of the estate. 50/50
The 401k plan sponsors have indicated they can’t reclaim the qualified distributions to then distribute to a beneficiary. They would have to reissue checks to the estate.
The destination IRA has also said they can’t deposit the checks made out to their clearing house and into her account. This would have allowed the distributions to avoid probate and I forgot to inquire if an executor and proper paperwork could make the deposit. Probate is getting underway and I will hopefully have the letters of testamentary and executor privileges soon.
Or can the estate open an inherited IRA that can then be distributed to inherited IRAs for each of us? Being a direct distribution of the full plan I was hoping that it can work like this.
The goal of course is to avoid the full lump sum right now and take advantage of a 5 year inherited IRA distribution rule. The amounts are large and each lump sum would cause a very inefficient tax situation.
Probate is in its early stages and I’ll consult with the attorney soon but the last thing I want to do is cash it incorrectly and be out of luck. I’ve scoured all the IRS publications as best I can without finding out how to handle the checks.
Thanks in advance!
Permalink Submitted by Alan - IRA critic on Mon, 2024-04-29 21:09
The checks should be returned to the plan or the plan should stop payment and reissue the direct rollover checks FBO the designated plan beneficiary’s inherited IRA accounts. This might be more difficult if the checks were issued in 2023 and have been reported on a 1099R for 2023. To assist the plan, the executor might disclose to the plan that the estate beneficiaries are the same as those named on the 401k and agree to hold harmless the plan for agreeing to this solution. A less desirable and more costly option would be for the beneficiaries to apply for a PLR to this effect.