401(k) Stretch Options
Situaiton:
Husband, 68 dies. Wife, 67. Kids 25 & 23. $500,000 in a 401(k) plan where he was an active employee until death. His wife is the only beneficiary.
Goal: Wife does not need the money (substantial outside assets) and wants to be able to leave it to children in tax deferred account with minimal disruption.
Question:
What is the best way to ensure the kids have the stretch option available to them upon the mother’s passing. Is it more suitable to roll the 401(k) into an Inherited IRA or simply roll it into the wife’s IRA?
Permalink Submitted by mk foss on Fri, 2009-08-21 16:32
You normally would not use an inherited IRA in this situation. An inherited IRA is used when you’re retitling an existing IRA or when a nonspouse beneficiary is creating an IRA to accept the 401k benefits. There is no further stretch with an inherited IRA.
Since the spouse is over 59.5 there is no reason she shouldn’t roll the money to an IRA of her own. No distributions will be required until she reaches 70.5 and she can name the children as beneficiaries allowing them to use their own life expectancies when Mom passes away.