Inherited 401K – non spouse, no beneficiary

Submitted by John Fritts on Tue, 2014-11-04 21:16

Mother-in-law had inherited her late (died in the 1990s) husband’s JPMorgan 401k and died in 2007 (age 70, but not yet 70 1/2, so no RMD)
No wills for either.
No beneficiary designated on 401K when mother had it.
Daughter became executrix of estate, which went through probate – all thought to be settled and closed out (around 2009)

Assets were evenly divided between surviving brother and sister.

Later discovered the 401K account.

Therefore, the Estate (since reopened) is apparently the “default” beneficiary.

Other than receiving a lump sum distribution to the estate, are there any other options? (it’s been over 5 years since death of account holder)

How about taxes if lump sum is the only option? Should the estate pay the taxes and file a 1041?

Please forgive my ignorance if any of this is incorrect – never dealt with this type of thing.

Thanks



Submitted by Alan - IRA critic on Wed, 2014-11-05 00:48

  • If decedent was single at death, their estate is typically the default beneficiary when the error of not naming a designated beneficiary occurs. Plans typically require lump sum distributions in cases like that, but even the 5 year rule deadline has now passed, so there will be a lump sum distribution due. There is no other option. The 401k distribution will be made to the estate, and the executor will likely find it beneficial to pass the LSD through to the estate beneficiaries on a K1 (with 1041) so that the individual tax rates will apply instead of the compressed rates for estates.
  • The estate should also file a 5329 explaining the late discovery of the 401k and appealing the 50% excess accumulation penalty for reasonable cause under the 5329 Instructions.


Submitted by John Fritts on Wed, 2014-11-05 13:36

Thanks for the reply.  Yes, she was single, and the answer is pretty much what I expected from looking at many different sources.   Since every case differs, I wanted to throw this one out there.   I knew of the 5329 and K1, but didn’t know the form numbers off hand, so thanks for that info. as well.  I just hope the appeal will work – its not a huge amount, but still can be painful.



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