Non-Spousal Beneficiary on 401k
Can a non-spousal beneficiary of a 401k roll funds into a Roth IRA? the mother passed in nov. of 2020 and daughter is beneficiary.
Thanks,
Mike
Can a non-spousal beneficiary of a 401k roll funds into a Roth IRA? the mother passed in nov. of 2020 and daughter is beneficiary.
Thanks,
Mike
Permalink Submitted by Alan - IRA critic on Mon, 2021-01-11 21:02
Yes, unlike an IRA non spouse beneficiary, a non spouse beneficiary of a qualified plan (401k) can do a direct rollover into an inherited Roth IRA. This would be a taxable rollover. The challenge is that the balance of the 401k may be too large to roll over in a single year without spiking the marginal tax rate. Some plans will provide two direct rollovers in which the optimal amount goes to the inherited Roth IRA, and the rest to an inherited TIRA. Note that the portion rolled to an inherited TIRA cannot be converted.
Of course, if the plan included a Roth 401k balance, that balance must be rolled only to an inherited Roth IRA.
The 10 year rule will apply per the Secure Act, and daughter will not have annual beneficiary RMDs, but will have to drain the inherited accounts by 12/31/2030.
Permalink Submitted by Mike LaRose on Mon, 2021-01-11 23:29
Hello Alan,to clarify, the daughter would need to have the inherited Roth drained within 10 years?
Permalink Submitted by Mike LaRose on Mon, 2021-01-11 23:29
Hello Alan,to clarify, the daughter would need to have the inherited Roth drained within 10 years?
Permalink Submitted by Alan - IRA critic on Mon, 2021-01-11 23:55
Yes, see my last bullet point.