401-K options available to nonspouse beneficiary

Submitted by PAUL HAGGERTY on Wed, 2013-03-13 02:21

My client’s mother had a substantial 401-K when she retired in 2011. The mother passed away in 2011 and she received an RMD distribution for 2011. Her husband inherited her 401-K and received an RMD distribution in 2012.The husband unfortunately passed away in 2012 and his only son is the only beneficiary of the father’s estate.

Is the son allowed to rollover the father’s 401-K as a nonspouse beneficiary into an IRA registered in the name of his father with the son as the beneficiary?



Submitted by Alan - IRA critic on Wed, 2013-03-13 02:43

3 questions:

  1. Husband just kept the 401k and did not roll it over to an IRA in his name?
  2. Did the husband name the son as successor beneficiary or is his estate the beneficiary of the 401k?
  3. Mother took an RMD, but that does not always mean that she passed after her required beginning date. Did she definitely pass AFTER her RBD?

Submitted by PAUL HAGGERTY on Wed, 2013-03-13 18:30

Alan,I will get bAck to you on this

Submitted by PAUL HAGGERTY on Sat, 2013-03-16 21:14

The husband did not roll over the wife’s 401-K into an IRA. He was very sickly himself during this time and passed away on 6.29.2012.The mother’s RMD date was 2010 and she receieved an RMD for that year and for 2011.There is no successor beneficiary named for the 401-K.The attorney handleing this matter placed the 401-K in probate in the name of the mother (deceased), beneficiary: William (the father). The attorney obtained an EIN number for the Estate of the father.The only item in Probate is the 401-K. Last Will and Testament of the father bequeathes remainder of father’s estate to his only son.Can the Estate of the Father which holds the 401-k allow the rolling over of the 401-K to the only beneficiary of the estate to the son?This being said, is it correct to prepare a Deceased Estate Form 1041 passing thru to the beneficiary the RMD received by the estate.I hope this helps you. Thank you in advance for your insight.   

Submitted by Alan - IRA critic on Sun, 2013-03-17 04:25

  • Both died after their RBDs, so the 5 year rule is avoided. Under Notice 2007-7 only a designated beneficiary or beneficiary of a qualified trust can transfer plan benefits to an inherited IRA. Estate beneficiaries are not designated beneficiaries, so there cannot be an inherited IRA created here. The plan death benefit can be assigned to the son and the son can take RMDs over the non recalculated remaining life expectancy of father (the original designated beneficiary) UNLESS the 401k plan provisions indicate otherwise. A copy of the plan post participant death provisions should be requested to make sure the that RMDs are not being accelerated any faster than the provisions indicate.
  • I don’t think a post death disclaimer will do any good here since the son is probably the beneficiary of both parent’s wills and both parents were probably close in age, but read the following article for some major points. Note that in your case the deaths were post RBD and that differs, but some aspects are very similar. If by chance there is any benefit of father’s estate disclaiming, the 9 month deadline is only about 10 days away. After reading the article, post any additional questions: http://www.morningstar.com/advisor/t/42990374/double-deaths-husband-and-wife.htm?
  • Any distributions from the 401k to the estate can be passed through on a 1041/K1 to the son until the estate is terminated and the 401k death benefits assigned to the son. 

Submitted by PAUL HAGGERTY on Tue, 2013-03-19 03:19

It appears that post death benefit provisions of the plan are what will determine whether or not the paln benefits can be assigned to the son allowing him to take RMD’s over his father’s life expectency. If not alloewd by the plan, would the son have to take a complete distribution? I do not have access to the plan’s post participant death provisions. My thought is to first get a three way telephone conversation with myself, the son and the plan administrater to discuss this matter. Your thoughts on this approach. My client has no paperwork documentation regarding this 401-K other than the 1099-R the estate received for 2012.Your thoughts?  

Submitted by Alan - IRA critic on Wed, 2013-03-20 04:50

Even if you have the 3 way conference, you have no way of knowing whether the plan administrator is correctly interpreting the plan provisions. You would need a copy of the relevant plan provisions to be sure. Of course, if the plan administrator indicates that the death benefits can be assigned to the son and paid over the father’s life expectancy, that is the best option available since the inherited IRA is off the table. However, the plan could require a lump sum distribution as well, and in that case, it may be worth requesting a copy to be sure the interpretation is correct. The fact pattern here is different from what they are probably used to addressing.

Submitted by PAUL HAGGERTY on Wed, 2013-03-20 15:14

Is the Plan Administrator required to provide a copy of the plan to the beneficiary. Do you know where I can get a hold of a sample letter for the estate to disclaim the 401-k benefits and assingn them to the son as beneficiary of the estate or would the custodian (JP Morgan Chase) provide me with the documents? 

Submitted by Bruce Steiner on Sun, 2013-03-17 12:35

It’s too late for the father’s executors to disclaim, since the 9-month period for that began when the mother died in 2011.  However, as Alan points out, the beneficiaries of the father’s estate still have a few days left to disclaim if that will produce a better result (for example, if the father’s Will leaves his estate to the son, or to the son’s children if the son predeceases the father, and the son expects to have a taxable estate and would prefer that the father’s assets go to the son’s children instead of to the son).

Submitted by Krisha Lei on Wed, 2013-07-03 06:19

It seems like there’s nothing but not so great news going around these days, but then again a lot of it is down to the press just fear-mongering again because it gets rankings. At any rate, there is something to give some people hope, particularly if they have retirement nervousness. A number of reports indicated that 401(k) policies are starting to make money again, after years of stagnation. You can get a cash advance to pay for things while waiting for your retirement account to go up.

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