distribution from profit sharing account
A client passed away in 2015 at the age of 48 and had a small balance in her company profit sharing account ($5,000). Her two sons are beneficiaries as she is a widow. Do they have 5 years from the date of death to take out a lump sum distribution as long as they do not roll it into a beneficiary IRA?
Permalink Submitted by Alan - IRA critic on Thu, 2016-12-15 22:12
It depends on what the default and election provisions are in the plan document. In some cases, the beneficiaries must make an election by the end of 2016 or the default provisions kick in. However, even if the plan provisions call for the 5 year rule to apply, if they do direct rollovers to inherited IRAs no later than 12/31/2016 they can use life expectancy from the inherited IRA. So time is running very short because without the IRA direct rollover this year they are stuck with whatever the plan provisions indicate. Note that even if the 5 year rule applies, it just means the account must be drained by 12/31/2020, not that a lump sum distribution is required. They might be able to take out 20% each year or any other distribution pattern.