Minor as beneficiary of 401K
Two part question:
If a participant dies (with a balance in a 401(k) plan) and their beneficiary is their minor child (participant is not married), at what age is the child allowed to take the money? Age 18 or 21? Would early distribution rules apply?
So if the minor is 12, does the state name a guardian until the minor is old enough to take the money? Could the guardian access the money for the care of the child without penalty?
Thank you. Mary Gies
Permalink Submitted by Alan - IRA critic on Thu, 2016-09-22 16:43
State law come into play here and therefore variations apply. In many states an UTMA account would be established to receive the RMDs and the child would acquire legal access to the UTMA funds and to the 401k at the age of majority in that state. There would never be a penalty due to the death benefit coding on all distributions. If more than one beneficiary, a direct rollover to an inherited IRA in the name of the UTMA on behalf of child should be done before the deadline, so that the child’s age would continue to apply to RMD calculations.
Permalink Submitted by Mary Gies on Thu, 2016-09-22 17:38
The 401K deceased party was under 59 1/2. If the minor’s guardian rolls the 401K into an Inherited IRA fbo the minor, and withdraws money for the support of that minor prior to the minor being of age, will those withdrawals have early withdrawal penalties?
Permalink Submitted by Alan - IRA critic on Fri, 2016-09-23 00:49
No. All distributions are death benefits and death benefits never are subject to an early withdrawal penalty. Note that the direct rollover from the plan could be either to an inherited TIRA or an inherited Roth IRA, but a rollover to an inherited Roth IRA would be taxable and the Roth would still be subject to RMDs.