? on spouse as bene. of 401k

Submitted by Jason Frank on Mon, 2011-05-09 18:43

If a spouse is the beneficiary of a 401k plan and they choose the option of rolling the funds into an inherited IRA, when are they required to begin taking RMD’s?

Thanks!



Submitted by Alan Spross on Mon, 2011-05-09 18:56

At the end of the year following the year of death, or if sole is sole beneficiary at the end of the year the decedent would have reached 70.5, whichever is later.

If the decedent was subject to RMDs in the year of death, the beneficiary must also take out any RMD due for the decedent for the year of death, and this needs to be distributed earlier than the beneficiary RMD.

Submitted by mk foss on Tue, 2011-05-10 01:03

The answer to the question that you did not ask is…………

That quesiton would be – what happens if the spouse toll the inherited benefits to an IRA of his or her own? In that case, the benefits are treated as if they had always belonged to the beneficiary spouse. RMDs would begin at the usual time – if the spouse was over 70.5 when they inherited the 401k the first RMD would occur the year after the death – when the inherited benefits are in the IRA at 12/31 of the year of death. If the inheriting spouse is not 70.5, the RMDS begin by April 1 of the year that follows attaining age 70.5 but more typically by 12/31 of the year they reach age 70.5.

Submitted by Jason Frank on Tue, 2011-05-10 18:30

Since you mentioned it…

If the beneficiary is under 59 1/2 and may need to access some of the money, they would want to do the beneficiary IRA, right?

Submitted by Alan Spross on Tue, 2011-05-10 18:51

Exactly. The distributions would be coded with Code 4 (death distribution) and that eliminates the penalty.

Then after the beneficiary reaches 59.5, they can assume ownership of the IRA. This can be done at anytime, but once done they cannot change it back to inherited.

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