Can 2nd generation 401k beneficiary roll to inherited IRA?
If a husband passes away and the surviving spouse assumes his 401k (at TIAA Cref) as a beneficiary account (i.e. the 401k remains in HIS name, not hers), can her children roll the proceeds of this inherited 401k into their own inherited IRAs now that their mom has passed away? TIAA is indicating the new SECURE 2.0 act prohibits a “2nd generation” beneficiary from moving the proceeds into an inherited IRA. They can either redeem the entire account, or assume the account as a beneficiary 401k, still tied to their dad’s name, and take distributions in any amount each year, with the account needing to be depleted by the end of the 10th year after their Dad’s passing.
TIAA also explained that when the dad passed away, if the mom had either moved the 401k into her own IRA or assumed the account as a 401k in HER name (not her husband’s), then the kids would be considered 1st gen beneficiaries and would be eligible to move the funds into an inherited IRA.
Does this all sound accurate?
The dad passed in 2020, AFTER he was RMD age. The mom passed away in Oct, 2023, BEFORE she turned RMD age.
Thanks!
Permalink Submitted by Alan - IRA critic on Mon, 2024-04-29 21:53
They are correct that the plan is not allowed to do a direct rollover to an inherited IRA for a successor beneficiary, but this was not affected by Secure or Secure 2.0.
In addition, while Secure 2.0 (Sec 327) does allow a spousal beneficiary to elect to be treated as the plan owner starting in 2024, the spouse passed in 2023. She should have done a direct rollover to either an owned or inherited IRA before passing. Therefore, the best options for the children at this point is to be treated as successor beneficiaries under the plan, falling under the 10 year rule. If husband passed after his RBD, the children will also have to continue the beneficiary RMD schedule of the spouse starting in 2025. Their own ages are not relevant.
Permalink Submitted by Kyle Bigler on Wed, 2024-05-01 05:27
Thank you so much for your help! Greatly appreciated!!