401(k) Estate Is Beneficiary
A CPA friend asked me for advice on this:
Estate is inheriting a 401k and the plan sponsor wants to make a lump sum distribution. Not sure how much it is but this is a disaster if it is large.
Do the same rules apply to 401K’s as to IRA’s here? Is a 5 year payout possible? I guess the 401k can have its own rules that are more strict than the law.
Any chance of a rollover to an IRA with the estate as beneficiary and then shop IRA custodians for a lifetime payout as noted by Natalie Choate here
http://www.ataxplan.com/bulletinBoard/ira_providers.cfm
Thanks,
Glenn
Permalink Submitted by Alan Spross on Sat, 2012-02-04 22:01
Unfortuneately, the mandatory direct rollover requirement that applies to non spouse designated beneficairies and to qualified trusts does not apply to estates. Those direct rollovers were introduced by Sec 829 of the PPA in 2006 and made mandatory for qualified plans in the Dec, 2008 tax bill (WRERA). But estates cannot take advantage of this.
The plan can certainly offer the 5 year rule for deaths prior to the RBD, or life expectancy of the plan owner if they passed after the RBD. But as you indicated, plans can be more restrictive than the IRS RMD requirements and custodians all seem to want to distribute lump sums ASAP to estates. Perhaps they want no part of becoming involved in estate related litigation.
Natalie Choate’s publication applies to IRA accounts, but there is no way to transfer a qualified plan to an IRA custodian.