what can be done with 401k with no beneficiary
My mother recently passed away. She did not have a beneficiary on her 401k so I understand that the estate becomes the beneficiary. I am the sole heir and the executor of the estate. My question is what can be done with this 401k once it is turned over to an estate account. Can it be transfered or rolled over to an Inherited IRA? Does it have to be rolled into an Estate IRA? I’ve been getting so much conflicting information and want to make sure I do this right.
If it can go to an inherited IRA, does it have to be taken out over 5 years or over my life expectancy? what if it has to go into estate IRA?
Any clarification is greatly appreciated.
Marsha
Permalink Submitted by Alan Spross on Thu, 2012-04-26 21:38
I assume that your mother was single or the deemed beneficiary would be her spouse. If single and the plan default beneficiary is her estate, then you should resist the plan’s expected preference for making a lump sum distribution to the estate and ask them what distribution options are allowed under the plan provisions.
Your RMD schedule under IRS rules would be:
1) 5 year rule if your mother passed prior to her required beginning date for RMDs
2) Your mother’s non recalculated life expectancy had she lived if she passed on or after her RBD.
But the plan is allowed to be more restrictive than the IRS rules above. If the plan provisions actually require a lump sum distribution, then there is no benefit to get them to assign the plan to you as beneficiary. However, if the plan will allow you to take distributions under one of the two situations above, then you should try to get them to accept assignment to you so you can terminate the estate before the plan benefits are fully distributed.
Note that either way you do NOT have the option of tranferring the assets to an inherited IRA because you were not the designated beneficiary. If you had been directly named as beneficiary you could have transferred the assets to an inherited IRA (or even to an inherited Roth IRA if preferred) to avoid any restrictive plan distribution requirements. As it is however, all you can do is hope the plan provisions allow you to avoid a lump sum distribution and the higher tax bill that would result.
NOTE: If you can benefit from assignment, here is a sample letter to send to the plan administrator:
http://www.ataxplan.com/bulletinBoard/pdfs/FiducLetterWebVersion.pdf