If a person dies during the process of a direct rollover from a 401(k) to an IRA, should the receiving financial institution process the transaction or send it back to the 401(k)? The 401(k) administrator sent the check to the client, but it was made payable to the financial institution and the partipant’s IRA. So the deceased person’s financial advisor is trying to decide if it should be sent back to the 401(k) or finish the process of the rollover.
Sounds like the participant requested the rollover and established IRA at the receiving financial institution. Check was made payable to IRA, but check was sent to client at their home. Just before client was going to forward it on he passed away. The beneficiary on both plans is the same. Financial institution that is receiving the money says it is alright to add to established IRA. Do you agree? Thank you for response.
I have a PLR request pending on this issue right now. Stay tuned.Bruce Steiner, attorney, NYC, also admitted in NJ and FL
Bruce, did the IRA custodian ask for the PLR before they would accept the direct rollover check? Would this type of PLR qualify for the amount based IRS fees for rollover rulings?
Yes, it was the financial institution that insisted on the ruling. If the ruling request were limited to waiving the 60-day deadline for putting the money into the decedent’s IRA, it would have qualified for the $3,000 fee. However, the financial instituion insisted on rulings on additional issues (getting the IRA benefits to the spouse for a rollover), so the fee was $10,000.
Permalink Submitted by Alan - IRA critic on Tue, 2014-06-03 16:25
I don’t know if the receiving institution should accept the rollover or not, but they should have their own policy about this. It may also depend exactly where in the process the death occurred. Was it before the direct rollover check was released or at some later point? If the institution will not accept it, it will have to be returned to the issuer. Is the 401k beneficiary the same as the IRA beneficiary? If not, those beneficiaries have a large vested interest where these funds end up. There are risks for the financial advisor if he sends the check on without the receiving institution knowing about the passing. Even if the advisor had a POA, that expired upon death. State law may also address this situation and affect the receiving institution guidelines.