414 h to father

Submitted by Douglas Bauerband on Thu, 2017-10-19 20:09

Client’s son left his father as beny on a 414h with the state of NJ.

His son passed away in april of 2017

before he did anything the father passed away in August of 2017

the 414h:

a. can the wife (mother) become the beneficiary due to it was her husband that it was left to and she can transfer to an inherited IRA?

or…

b. Does the wife (mother) have to take the full amount and pay taxes on it since she was not named a beny?

c. any other opitons?

Thank you.
Douglas



Submitted by Alan - IRA critic on Thu, 2017-10-19 23:57

  • Father’s will determines where the death benefits go, and if no will the state intestate provisions govern. The intestate provisions likely award the father’s interest to his spouse. The executor of fathers’s estate can probably transfer the inherited plan to an inherited IRA for the beneficiary as determined.
  • RMDs will be based on father’s remaining life expectancy. The plan may try to push for a lump sum distribution but it not likely the plan provisions require a lump sum in this situation.

Submitted by Ben Meyer on Sat, 2017-10-21 00:16

  • If client’s son lived in NJ while he was making 414h contributions, the contributions were very likely after-tax for NJ income tax purposes, but were pre-tax for federal tax.  If the new beneficiary, likely the mother, also lives in NJ, the NJ basis is non-taxable by NJ.  If the recipient lives in another state, then the rules of that state will apply.  The portion of any distribution containing NJ basis needs to be determined or the recipient will be subject to paying NJ tax again on the NJ basis carried out with each distribution.  The recipient may also be able to claim a NJ pension exclusion. 
  • The NJ procedure for determining the excludable portion depends on accurate records of the original contributions, either from taxpayer records or plan records.  The procedure involves a calculation similar to NJ Worksheet B or C and is described in the NJ tax documentation.

Submitted by Douglas Bauerband on Mon, 2017-10-23 23:35

414h company with the State of NJ wants to just send a check to the estate, which will make 100% of the 125k taxable.  I called them and he said to send what i have to take to the department and get a final answer if they will rollover/transfer or not.  below is what you wrote back to me…is there any rules or regulations that i can quote or use to have the State of NJ consider doing a rollver/transfer instead of mailing a check to the estate? 

  • Father’s will determines where the death benefits go, and if no will the state intestate provisions govern. The intestate provisions likely award the father’s interest to his spouse. The executor of fathers’s estate can probably transfer the inherited plan to an inherited IRA for the beneficiary as determined.
  • RMDs will be based on father’s remaining life expectancy. The plan may try to push for a lump sum distribution but it not likely the plan provisions require a lump sum in this situation.

thank you very much for any help.

Submitted by Alan - IRA critic on Tue, 2017-10-24 00:34

Sorry, my prior statement regarding an inherited IRA was incorrect. While father could have done a direct rollover to an inherited IRA while still living, upon father’s death this option is eliminated since only a designated beneficiary can do such a direct rollover. The plan could still make annual RMDs to father’s estate, but most all plans will not do that and will simply make a lump sum distribution in this set of circumstances. In addition, the executor of father’s estate probably wants to close the estate relatively soon. 

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