Spouse is 401k beneficiary
44 year old husband dies naming his 35 year old wife as his 401k beneficiary. Wife establishes a Beneficiary IRA and rolls the husbands 401k into it. IRA title reads Husband, Deceased IRA FBO Wife, Beneficary. The wife plans to tap the IRA as needed. There is no 10% penalty on withdrawals, correct? ALSO, does the wife need to take RMD starting next year, or can she wait until the husband would have truned 70 1/2? Thank you.
Permalink Submitted by Alan Spross on Wed, 2011-04-13 19:59
Correct, no 10% penalty on distributions because the IRA is inherited and the 1099R will have the Code 4 in Box 7 (Death distribution).
She has no actual RMD requirement until the end of the year that husband would have reached age 70.5. Therefore, her plan should be to keep the inherited IRA until she reaches 59.5, and then assume ownership of it. She also benefits from a special rule that even though she is maintaining the IRA in inherited form, her successor beneficiary (eg a child) is treated as if she actually owned the IRA and therefore the child would get a full stretch upon her passing. But this benefit ends when husband would have been 70.5, which is another reason to execute the rollover at 59.5.
Permalink Submitted by Joe Messina on Wed, 2011-04-13 20:46
Excellent. Thank you very much.