401(k) distribution to a decedents irrevocable living trust (as beneficiary)
A recent decedent (d.o.d. 2/17/20 d.o.b. 11/18/30) established an irrevocable living trust during her lifetime. She has 6 children as beneficiaries. The trust was funded with her stock portfolio and she had a 401(k) which she designated the irrevocable trust as the beneficiary.
Is the Net Unrealized Appreciation (NUA) and /or 10-year averaging method of taxation on the 401(k), available when a trust is the beneficiary? If not, would the next best option for distribution be to selectively take distributions from the 401(k) over the next 6 years since everybody gets a pass for 2020? Some of the beneficiaries want their share now and some may want to stretch the payout. My premise to the beneficiaries is, let the market rebound and the longer you wait for distributions, the more you get.
Permalink Submitted by Alan - IRA critic on Fri, 2020-05-01 03:49
The trust distributee does not eliminate NUA based on participant’s death as the triggering event, however because the 401k plan must distribute a LSD in a single year, any option for partial distributions to the trust to fund a single beneficiary’s distribution needs will end the 10 year rule distribution period otherwise available for the 401k balance under the Secure Act. Since there are no annual RMDs due, the LSD could be deferred to later years in the 10 year period, but then there cannot be any distribution from the plan until that LSD year, and trust beneficiaries would not get their share earlier, at least from the 401k plan.
Permalink Submitted by Bruce Steiner on Sat, 2020-05-09 16:08