401k Passed Through Estate

Submitted by Matthew Ottusch on Mon, 2023-10-30 15:48

401K (non-Roth) owner did not have any beneficiaries and so it passes to his estate/trust.

Total value is approx $330K.

Probate is now complete.

What options do beneficiaries have? Can this pass through the estate/trust to each of us into an inherited IRA?
Or do we simply take distributions through the estate/trust? I think we would want to pay taxes individually instead of by the estate/trust.



Submitted by Alan - IRA critic on Mon, 2023-10-30 16:03

  • Almost always this will result in a lump sum distribution to the estate, so probate is not complete. A lump sum will erase the ability to use the 5 year rule or the remaining LE of decedent if decedent passed after RMDs had begun. A 1099R will be issued to the estate EIN with the income reported on Form 1041. There is no way to move these funds into an inherited IRA for the estate beneficiaries as the 401k is not eligible for a direct rollover to those estate beneficiaries. They needed to be named directly on the plan as beneficiaries to avoid this outcome.
  • If there was a will, the will determines who inherits from the estate. If no will either, then state intestate law.
  • This does not mean that the high tax rates for an estate will apply, as once the executor receives the distribution to the estate, it can be passed through on Form K 1 (Form 1041) to the respective beneficiaries of the estate who will then report the income on their personal returns and pay their personal tax rates.  This may trigger underpayment penalties for the beneficiaries.

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