401k beneficiary rollover to IRA
I have a client that inherited her husband’s 401k upon his early death. After her husband died she rolled over into an IRA. Would this be an inherited IRA? Her husband would be 70.5 this year so would she have to begin taking RMDs? Thanks
Permalink Submitted by Alan - IRA critic on Tue, 2014-09-02 18:06
How old will client be at the end of 2014, and in what year was the rollover done? The IRA she has could have been titled as owned OR inherited, but if inherited her RMDs start this year.
Permalink Submitted by Lewis Young on Tue, 2014-09-02 18:14
she will be 56 at the end of this month. It appears that the rollover was done in 1997.It is titled just as her name and IRA
Permalink Submitted by Alan - IRA critic on Tue, 2014-09-02 18:27
OK, she owns the IRA, or at least she does now. If it had been inherited instead of owned, any distributions she took since 97 would have been penalty free, but having owned it, there is a 10% penalty on all distributions until she reaches 59.5, but RMDs do not start until SHE is 70.5. Hopefully, she has not been taking distributions. On the other hand, had the IRA been titled as inherited, she would have to start RMDs this year because husband would have been 70.5. Therefore, if she owns it, RMDs are still 14 years away, but if she needs to take distributions from it, there is a 10% penalty until she reaches 59.5 unless she qualifies for a penalty exception. You might check to see if she is taking SEPP (72t plan) distributions, which is a way to avoid the penalty when the IRA is owned but owner needs distributions before 59.5. A SEPP is often the result if a surviving spouse rolls over an inherited IRA sooner than it should have been and faces penalties. The SEPP will avoid the penalty but the plan is very rigid and any error in taking the exact annual distribution results in retroactive penalty and interest.
Permalink Submitted by Lewis Young on Tue, 2014-09-02 18:44
much appreciated thank you