Trust as IRA Beneficiary

Submitted by Justin Chibucos on Fri, 2024-01-26 13:12

I have a surviving spouse who inherited her deceased husband’s 401K. Husband was age 55 at death, surviving spouse is age 52. The husband named his trust as beneficiary of the 401K which that trust names the surviving spouse as sole beneficiary. The trust is a see-through trust and allows for all options available by law. Can you please explain the options and RMD requirements this surviving spouse has in either leave the money with the 401K provider (which has retitled the 401K assets in the name of the deceased spouse’s trust) or can she transfer those assets to either a Bene IRA in the name of the trust or even roll it over to her own IRA? I am getting push back from the 401K provider on the surviving spouses ability to roll this money over to a Bene IRA with me in one form or fashion. Appreciate your help in advance.



Submitted by Justin Chibucos on Fri, 2024-01-26 13:12

Sorry, subject should have been Trust as 401K beneficiary 

Submitted by Alan - IRA critic on Fri, 2024-01-26 16:45

  • IRS rules allow direct rollovers of the inherited 401k balance to an inherited IRA for the trust, but only if the trust is qualified for look through. One of the requirements for qualification is that applicable portions of the trust document are submitted to the plan no later than 10/31 of the year following the year of death. If the trust fails that or any other of the requirements, it will be treated as non qualified by the plan, and the 5 year rule will apply. In most cases, the plan will then make a total distribution to the trust. Therefore, this all starts with the plan determination if the trust is qualified or not.
  • Even if the trust is treated as qualified, the plan may have more restrictive provisions than the IRS rules.
  • If a direct rollover to an inherited IRA is completed by the end of the year following the year of death, any restrictive terms of the plan (eg a mandatory 5 year rule) will not apply to the inherited IRA. The inherited IRA could then be distributed under the 10 year rule, or if the trust is a conduit trust for the spouse (an EDB) it could be stretched.
  • There have been prior letter rulings allowing the trustee of the trust (if trust permits) to make a total distribution to the surviving spouse, who can then roll it over to her own IRA. That does not mean that an IRA custodian would allow it, but some might, usually the larger non bank brokerage IRA custodians.
  • Therefore, the first issue should be getting clarification from the plan that the trust is qualified, since that will allow, at least under IRS rules, for the direct rollover to an inherited IRA, free of any 401k plan restrictive provisions, the worst of which is a total distribution, but also a mandatory 5 year rule. The inherited IRA custodian might allow a spousal rollover without requiring the trustee to secure their own PLR.
  • Why did the deceased spouse not name his spouse as the outright beneficiary on the plan? Are there creditor protection or spendthrift issues?

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