spousal inherit 401k
Scenario:
A 58 year old 401k plan participant who was no longer employed passed away. His wife was beneficiary on the 401k account. The 401k account was reregistered in the 56 year old wife’s name – it was not transferred to an IRA. I have not seen a company reregister the 401k account to a surviving spouse and leave it with the company of a former employer. But now with it being in her name, can she distribute from the account based on his age or must she use her age?
Permalink Submitted by Alan - IRA critic on Thu, 2021-09-02 20:51
A sole spousal beneficiary of any plan is not required to begin beneficiary RMDs until the deceased spouse would have reached age 72. Until she reaches 59.5, she should maintain the account as inherited in order to be able to take distributions with no penalty. She could leave it there, or do a direct rollover to an inherited IRA. Before deciding on that she should check if there is any highly appreciated employer stock in the plan on which she could benefit from NUA. NUA requires a lump sum distribution, so any distribution she takes that is not part of a lump sum distribution will forfeit the use of NUA, and that includes a direct rollover to an inherited IRA. But if there is no NUA potential, then she can decide whether she wants to leave the account there until 59.5, or do a direct rollover to an inherited IRA. In either case there are no RMDs due for many years. Upon reaching 59.5 she should do a direct rollover to her own IRA if still has the inherited 401k, or if she earlier did a direct rollover to an inherited IRA, she can elect to assume ownership of that inherited IRA at 59.5. From that point she will simply have an IRA or her own, with RMDs starting at 72.