401k With No Named Beneficiaries

Submitted by Matthew Ottusch on Thu, 2023-12-21 21:00

Father of a client passed away this year with no named beneficiaries on his 401k. The deceased’s will moved the 401k to his trust.

What now is the best/proper method to distribute the funds to trust beneficiaries: my client and his 2 brothers. One brother would like it to go to an inherited IRA and spread across 10 years. Is that possible in this situation?



Submitted by Alan - IRA critic on Thu, 2023-12-21 21:21

  • It’s not allowed. The beneficiaries of an estate are not eligible for a direct rollover to inherited IRA accounts like they would have been if they were named as beneficiaries on the plan. Further, if the trust was not directly named as beneficiary of the plan, it will not be a qualified trust that is also eligible for a direct rollover. In situations like this the plan will almost always make a lump sum distribution to the trust, even if the estate would otherwise have been eligible for the 5 year rule or for deaths post RBD to life expectancy distributions using decedent’s age. 
  • The trust will probably pass the lump sum distribution through to the trust beneficiaries on a K1 and the beneficiaries will pay taxes at their personal tax rates, which are lower than the trust tax rates.
  • Not naming a beneficiary is costly, but even more so for a qualified plan than for an IRA.
  • Am assuming the father is single, if married his spouse would have inherited under ERISA.

Add new comment

Log in or register to post comments