Inherited IRA and 401(k)
A single (never married) 46 year old man dies unexpectedly December 2024. He has named his one sister and widowed mother, ages 47 and 70, as the beneficiaries of his employer sponsored 401(k) ($240,000) and his Roth IRA (70,000 rounded). The mother and sister do not need the money to live on and so would like to stretch RMDs.
Can the 401(k) be divided and transferred to respective inherited IRAs, or must it stay with the employer during the RMD period?
Because both beneficiaries are older than he at his death, can the inherited IRAs and 401(k) be withdrawn over life expectancy using Table 1?
Permalink Submitted by Alan - IRA critic on Mon, 2025-03-31 11:47
Direct rollovers to inherited IRAs should be requested by each beneficiary. Both beneficiaries are EDBs and therefore the plan will have to distribute the 2025 beneficiary RMD before completing the direct rollovers.
The single life table will apply based on each of their ages attained in 2025, with annual 1.0 divisor reductions thereafter.
If the decedent first contributed to a Roth IRA prior to 2021, the inherited Roth is now qualified due to his death, so the beneficiaries need only report the Roth distributions on line 4a of Form 1040. Form 8606 is not needed. But the distribution of the beneficiary 2025 RMD from the 401k will be reported on lines 5a and 5b. Starting in 2026 when the 401k funds are in a TIRA, the distributions will be reported on lines 4a and 4b.
A non spouse beneficiary of a pre tax 401k also has the option to send the direct rollover (or part of it) to an inherited Roth IRA if they choose. This rollover of course would be taxable.
Permalink Submitted by BruceM on Sat, 2025-04-05 12:28
Alan, thanks.
Do I understand you correctly that the sister can direct part or all of her $120,000 inherited in the 401(k) to the inherited Roth IRA? Is this employer plan to Roth only allowed if there is an inherited Roth from the same decedent, or could she direct all/part of the inherited 401(k) to her own Roth IRA?
Permalink Submitted by Alan - IRA critic on Sun, 2025-04-06 10:50
The funds can only be rolled to inherited Roth or TIRA accounts, not to the non spouse beneficiary’s own Roth IRA.
Sister can direct all or part of her share of the pre tax 401k to an inherited Roth IRA (would be taxable), the same inherited Roth that will receive the direct rollover of the inherited Roth 401k, as they were inherited from the same decedent.
Since the pre tax portion is rarely rolled to an inherited Roth IRA, sister must be very specific when requesting the direct rollover as to the destination and amounts, to make sure that the request is clear to the plan administrator. When completed she should immediately check her inherited account balances to be sure the correct amounts were deposited to the accounts. As an EDB she will be taking annual beneficiary RMDs from both accounts, but the plan will have to distribute the 2025 beneficiary RMD before doing the direct rollovers.
Permalink Submitted by BruceM on Sun, 2025-04-06 12:41
Interesting. Thanks for the explanation.