Inherited 401K RMD Question
Hello:
I have a client (age 55) who inherited a 401K from her Mother, who died in 2024 her 90s. The Mother was after her RBD. My client is a Non-Eligible Desi Bene (NEDB). We called Fidelity to take the client’s RMD for 2025.
My understanding is that my Client, the NEDB, needs to take RMDs for years 1-9 based on the single life expectancy on my client’s age (stretch IRA), then in year 10, the remaining balance needs to be distributed. This comes from the IRS Final regulations of July 2024.
Fidelity says that the RMD in years 1-9 needs to be based on the life expectancy original owner’s age.
Obviously, these are producing vastly different amounts.
Question #1: Who is right? Note: this is an Inherited 401K, not an Inherited IRA.
Question #2: If my understanding is correct, and Fidelity is incorrect, Fidelity says they need evidence,as we can’t distribute an RMD for less than what Fidelity is calculating, so I’m planning on sending the IRS regs, but anything else I should add?
Thanks!
Permalink Submitted by Alan - IRA critic on Fri, 2025-08-29 13:45
You are correct. The client’s single LE determines beneficiary RMDs in years 1-9 of the 10 year rule.
Fidelity would only be correct if mother’s estate inherited the 401k and distributions were made to the estate then passed through to client as the will beneficiary. Since that’s not the case, I think client has been dealing with a trainee or otherwise challenged staffer who is obviously confused, and this is rare for Fidelity. Perhaps they last dealt with a beneficiary who was older than the decedent?
IRS Reg 1.401(a)(9)(d)(1)(ii) is the applicable cite, which is stated in terms of the greater denominator of that of the employee or the beneficiary. The greater denominator produces the lower RMD.
Permalink Submitted by CT on Thu, 2025-09-25 14:36
We just got off the phone with Fidelity. The person I talked to (low level) said we need to send a letter to Fidelity via USPS for a review from the back office. Nobody from the back office can discuss on the phone (sounds suspect). Being this late in the year, they said there are no promises that it will get resolved. We are going to write a letter, but in the meantime.
Here are some questions (Note: I realize these questions may be specific to a phone call with Fidelity, but I’ll try them here first).
If we transfer the Fidelity Inherited 401(k) to a Fidelity Inherited IRA, will this qualify as a Direct Trustee-to-Trustee transfer, and can we take out the RMD from the Inherited IRA? Or will it be considered a rollover, and the RMD will need to be disbursed first?
Suppose we withdraw our calculation instead of Fidelity’s RMD calculation. What happens from a “missed” RMD from Fidelity’s standpoint? Is it reported to the IRS, and then wait for a letter to respond to?
Thanks!