401k with estate beneficiary
Son d(age 60) predeceased mom who will inherit his estate. Son dies with a 401k account of 112k the beneficiary of which is his estate. Employer tells mom they must move the funds out of the 401k. Is there anyway to get the 5 year payout by some kind of rollover? The estate isn’t a DB…Can we close the estate in probate and distribute to mom and have her do an inherited IRA taking money over 5 years? Mom is elderly and doesn’t mind 5 years….Just doesn’t want to pay tax on all of it in 2009!
Permalink Submitted by Alan Spross on Thu, 2009-08-20 01:12
Unfortuneately, the estate is not a DB as you indicated and therefore a rollover to a non spouse inherited IRA is not provided under Sec 824 of the PPA. The only way mom can avoid a LSD from the plan would be through the plan itself providing distributions over the 5 year rule period. That probably is not very likely to happen.
If mom normally has income from RMDs, this year might be the best to take the LSD since other RMDs have been waived. Another possibility since she must take a LSD anyway would be to determine if there is any appreciated employer stock in the plan that could be distributed with current tax only on the plan cost basis. She could then sell the shares in later years and report the NUA as LT cap gain. Employee death is a triggering event for NUA purposes.