Son Inherited 401(k) from Mother who she also inherited same company 40l(k) from her husband and did not do Spousal rollover

Submitted by Michele Von Hoven on Thu, 2018-08-02 21:17

Andy, the son inherited his mother’s 401k (she passed 9/30/17); mother also inherited her husband’s 401(k) (he passed in 2010) from the same company and she did not do a Spousal rollover because the Bank custodian said she did not have to.
Now the son is debating if he can or should move the father’s and mother’s 401k. Bank is saying he can leave both in plan and use the life expectancy table (not saying who’s L.E.). Is there any special rule since the mother did not do Spousal? The son is the named beneficiary of the mother’s and the mother was the beneficiary of the father’s.
I contend that he must transfer into Inherited IRA by 12/31/18 in order to use Andy’s L.E. (he’s 60), otherwise he will have to use Mother’s L.E. She would be 82 this year and the father’s L. E. What is correct?
Do you have the IRC code on this? Thank you



Submitted by Alan - IRA critic on Fri, 2018-08-03 02:59

  • It was a mistake for mother not to roll over her inherited plan to her own IRA. Not only would her RMDs have been much lower using the Uniform Table, but her beneficiary (Andy) would have been able to use his own life expectancy.  Now that Andy has inherited the already inherited 401k, he cannot do an IRA rollover because he is not a designated beneficiary, he is a successor beneficiary. Further, he must continue to RMD schedule mother was using except his divisor will reduce by 1.0 each year.  It is fortunate the plan provisions allow his to continue the inherited 401k plan, otherwise he would have to take a total taxable distribution.  He is also responsible to complete mother’s 2017 RMD if she did not do so prior to passing.
  • Now for mother’s 401k, Andy IS a designated beneficiary and can do a direct rollover to an inherited IRA and use his own single life expectancy for RMDs starting this year if he does the direct rollover by 12/31/2018. He is also responsible for completing mother’s 2017 RMD if she did not do so. If he does the direct rollover after 12/31/2018, then his beneficiary RMDs from the IRA will have to be what they would have been under the plan, but since mother passed after her RBD, his RMDs would probably be the same.
  • I assume that mother named Andy as her beneficiary on both the 401k plans, not just on her own. If she didn’t the outcome for father’s 401k plan would change, and mother’s estate would probably inherit it. 

Submitted by Michele Von Hoven on Mon, 2018-08-06 19:19

1. To your last point please:  Can the beneficiary of a 401k, name  (their own) a beneficiary of that 401k, eventhough they do not move out of the plan? Or does it follow the father’s original beneficiary designations if the primary beneficiary dies? Who woluld have that beneficiary form? Plan sponsor? Bank-Investment Manager?2.   In your second response regarding Andy’s RMD’s; If he does direct rollover after 12/21/18, do you mean the RMD’s under the plan after RBD would be the same as for the mother’s Life expectancy not under his life expectancy?3. Can you leave funds in a 401k indefinately (if plan allows)?4. What is the benefit of moving the funds out of 401k and setting up Inherited IRA?

Submitted by Alan - IRA critic on Tue, 2018-08-07 00:02

  1. A 401k beneficiary should name their own sucessor beneficiary ASAP since beneficiaries named by the plan owner do not apply to deaths after the plan owner. The plan administrator can supply the required forms for the beneficiary to name a successor beneficiary.
  2. No. Because mother passed after RBD, almost all plans specify that the age of the beneficiary applies (unless beneficiary happens to be older than the decedent). Therefore, barring a very unusual plan provisions the life expectancy of Andy will apply, not that of his mother. Therefore, the 12/31 deadline normally has an impact ONLY when the plan owner passed prior to the RBD.
  3. Yes, the funds can be left in the 401k if the plan allows and the plan will determine and distribute the required RMD.
  4. In this particular case with a non spouse beneficiary, the main difference is the investment expenses and investment options available in an IRA vs. the plan. A spousal beneficiary has several other advantages of an IRA direct rollover that a non spouse does not have. Note that a non spouse beneficiary does have the option of converting to an inherited Roth IRA whereas a non spouse IRA beneficiary does not.

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