401(k) – Spouse not named beneficiary
My client’s wife passed away this year. She had a 401(k) with a large national company. She did not name him (or anyone) as his beneficiary.
She also had $140,000 in student loans outstanding at the time of death. He (surviving spouse) met with an attorney who advised him to file separate tax returns for last year (currently on extension). His new CPA told him that the 401(k) would have to be included in the estate and claimed as income on her return.
Their state of domicile is California (community property).
To my understanding, Sec 401(a)(11) makes the current spouse the automatic plan beneficiary, regardless of who else is named as beneficiary when there is no spousal waiver signed.
Is the surviving spouse the default beneficiary on the 401(k) in this case?
Assuming he is the beneficiary, wouldn’t he be able to convert those funds to an IRA without creating a taxable event?
Would there be any recourse or liability for the deceased wife’s student loans or income taxes owed?
Thank you in advance for your insights.
Permalink Submitted by mk foss on Fri, 2013-06-14 16:35
The spouse could be the default beneficiary either under the tax law or under the plan document. The surviving spouse can do a rollover to an IRA or another qualified plan. The 401(k) would be protected in a bankruptcy case and from creditors.The status of an inherited IRA when you’re looking at creditor protection isn’t certain, you should contact a bankruptcy attorney. The 401(k) plan would be included in her gross estate if she were required to file Form 706 but due to community property laws only half would be considered hers. No retirement plans are taxable until withdrawn so I don’t understand why the surviving spouse was advised that the 401(k) would be taxable.