Non-Spouse 401k Beneficiary

Submitted by Jonathan Sard on Wed, 2022-10-26 16:53

My 35-year-old client was the beneficiary of her 62-year-old mom’s 401k that is with a major airline. The 401k custodian moved her mom’s 401k into my client’s name in the 401k plan as a “non-spousal beneficiary 401k” but they are saying it is NOT an “inherited account”.

The custodian told my 35-year-old client that it is NOT an inherited 401k and that she is free to transfer her 401k account to her own IRA. Does that sound correct? Perhaps the 401k custodian meant to say she can transfer it into her own “Beneficiary IRA” and not her own personal IRA?

Thanks as always!



Submitted by Alan - IRA critic on Wed, 2022-10-26 18:41

  • There must have been communication issues, or the rep was not properly trained. Client has inherited the plan regardless of what the rep calls it. She should request a direct rollover to an inherited IRA that she must open. While she could also elect to roll it to an inherited Roth IRA, such a rollover would be taxable, whereas a direct rollover to an inherited traditional IRA would not. Client should determine whether there are any Roth 401k funds in the inherited plan, and if so inherited Roth 401k funds would have to be rolled into an inherited Roth IRA.
  • Unless client is disabled, the 10 year rule will apply to the inherited 401k or inherited IRA, but there will be no annual RMDs required since mother passed prior to her RBD.
  • Client cannot roll this account into her own IRA since such a rollover is not an eligible rollover distribution. She should be sure to title the IRA as inherited, eg “client as beneficiary of (Mom)”.

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