Inheriting from a 401k and moving funds to an Inherited IRA

Submitted by Wendy Mommaerts on Wed, 2024-01-24 20:32

I have a client who is inheriting funds from their dad’s 401k (dad was 76). Our client is looking to rollover these funds to an inherited IRA.

I would assume the rules are the normal 10yr rules where our client would withdraw an RMD for years 1-9 and empty the entire account by Dec 31st of 10yr of the anniversary death of her dad?



Submitted by Alan - IRA critic on Wed, 2024-01-24 21:34

Yes, that’s the case, assuming a timely direct rollover to an inherited IRA or inherited Roth IRA. Client should be sure to avoid any request that could be construed as a distribution request rather than a direct rollover.

Submitted by David Mertz on Wed, 2024-01-24 21:53

  • If dad did not complete his year-of death RMD for the 401(k), the client must complete that with a distribution from the 401(k).  Also, any beneficiary RMDs must be completed from the 401(k) for any year after the year of death before doing any direct rollover.  So if dad died in 2023 and had not taken his 2023 RMD, the client will need to take both dad’s 2023 RMD and the client’s 2024 beneficiary RMD from the 401(k) before doing a direct rollover of the remainder in 2024.  If dad instead died in 2024, only dad’s 2024 RMD would need to be completed from the 401(k) before directly rolling over the remainder in 2024.
  • If at the time of his death dad was still working for the company that provides the 401(k) and was not a more than 5% owner of the company, dad died before his required beginning date for RMDs from the 401(k) and no annual beneficiary RMDs or year-of-death RMD would be required, only final distribution by the end of year 10 after the year of death would be required.

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