Indirect Inherited IRA Rollover within CARES ACT

Submitted by Jared Woodward on Fri, 2020-11-06 19:52

Good Afternoon,

I have a client whos father had a state farm 401k, he passed leaving it to his wife, she passed 1 year later leaving my client and her siblings as beneficiaries. State farm paid the funds out via check to all the participants saying this is standard procedure and are not allowing us to return the check to move the funds in an inherited IRA. The State Farm retirement specialist is saying that we can put those funds back into an inherited IRA, I cannot find anything allowing this. Is there anything in the CARES ACT that allows us to complete an indirect beneficiary IRA rollover or repay those contributions into the same type of account? The tax consequences are substantial this also has pushed their income above all of the phase out ranges for IRA’s and Roth IRA’s.



Submitted by Alan - IRA critic on Fri, 2020-11-06 22:24

  • Assuming that the original account was indeed a 401k, a direct rollover to an owned or inherited IRA can be done by the surviving spouse, however HER beneficiaries are not designated beneficiaries, they are successor beneficiaries and are not eligible for direct rollovers to inherited IRAs. It is totally incorrect that such a distribution can be rolled over. There was one exception to that under Notice 2020-51 applying to the CARES Act, however that was only for the amount of a would be 2020 RMD and even that exception expired on 8/31.
  • The surviving spouse should have rolled over the inherited 401k into her own IRA, or at least in certain situation to an inherited IRA. A 401k is not a place for a surviving spouse to leave the funds, since when the surviving spouse passes, the plan provisions almost always call for a lump sum distribution.

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