Beneficiary 401(k)

Submitted by Brian Smith on Wed, 2024-09-11 11:26

Good morning.  Question came up involving a participant who had a 401(k) and they died in Q4 of 2019.  Funds went into a beneficiary 401(k).  The surviving spouse, who is the beneficiary,  was told by the custodian that due to the secure act they have to take all the funds out now and pay taxes on it.  Can you please clarify b/c I thought a surviving spouse had 5 years to get the funds out including rolling it over into Beneficiary IRA (if under age 59 1/2) or doing an IRA Rollover.

Thank you for  your help in advance.

Regards,

Brian

 



Submitted by Alan - IRA critic on Wed, 2024-09-11 14:26

Apparently, this plan has a 5 year rule for deaths prior to RBD, and in the fifth year the entire balance is treated as the RMD. Fortunately, per the CARES Act 2020 does NOT count as one of those years, therefore the 5th year is 2025, not 2024. The spouse is eligible to do a direct rollover to her own IRA if this is completed before year end. Obviously, this needs to be pointed out to the plan administrator ASAP including that the Secure Act does not apply to deaths prior to 2020, and if they still do not agree the plan decision should be aggressively appealed.

 

Submitted by Brian Smith on Wed, 2024-09-11 16:28

Thank you Alan!

Submitted by Brian Smith on Wed, 2024-09-11 16:31

Clarification question, if the participant that died in 2019 was taking RMD’s…does that change things in this situation?  Thank you.

Submitted by Alan - IRA critic on Wed, 2024-09-11 17:48

If participant passed on or after their RBD, the 5 year rule would not be applicable in the first place. The RMDs would be life expectancy RMDs and would have been distributed each year after 2020. If there were no annual RMDs distributed, that should indicate that participant passed prior to RBD.

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