401k plan without a named Beneficiary – RMD

Submitted by Mary Beth Moran on Fri, 2017-12-08 16:11

My client received assets from her parents 401k plan. There was no beneficiary on file, so the employer established the account as an estate account and said it could not be rolled to beneficiary IRA. The accounts are subject to RMD. Can she process a 100% distribution and use the 60 day rule to roll it to a beneficiary IRA? Thank you



Submitted by Alan - IRA critic on Fri, 2017-12-08 17:05

  • No.  An estate as the beneficiary of a qualified plan produces a very bad result, worse than if the estate was the beneficiary of an IRA. 
  • Most plans including this one require a lump sum distribution in this case even though IRS rules do provide for a limited stretch, either the 5 year rule or the remaining life expectancy of the decedent if they passed on or after their RBD. But the total distribution cannot be rolled over as a 60 day rollover and IRS rules do not permit a direct rollover to inherited IRAs when a non individual entity is the plan beneficiary. That results in the plan distribution being immediately taxable.
  • While it is late in the year, your client might have used the proceeds to increase contributions to their own retirement plans if they are not maxed out. It may also be possible for the estate to adopt a fiscal accounting year that pushes the taxation of the plan distribution out to a year where client has sheltered more income. You may want to check with whoever is filing the estate income tax return on that.

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