inherited 401k from spouse

Submitted by John Hill on Wed, 2024-08-07 14:06

Client’s spouse died in 2023 at the age of 77, and client was age 76. 2023 RMD was distributed and custodian moved 401k into an inherited account in 2023. My understanding is that the spouse must take the 2024 RMD based on her age and Single Lifetime Table. She can elect a spousal rollover in 2024 and then starting in 2025, the RMD will be calculated using the survivor’s age and uniform table. The RMD divisor in 2024 would be lower if she implemented the spousal election in 2023. Is there any other options the surviving spouse should be aware of to reduce her RMD in 2024, since it is based on the Single Lifetime Table?



Submitted by Alan - IRA critic on Wed, 2024-08-07 15:23

The proposed Sec 327 Regulations appear to allow the surviving spouse to make an election this year to be treated as the employee and therefore the 2024 RMD would be calculated from the Uniform Table resulting in a lower RMD.

While that is beneficial to the surviving spouse, it is not for the surviving spouse’s beneficiary who will be treated as a successor beneficiary.

Therefore, if the surviving spouse makes the election, has the 2024 Uniform Table RMD distributed, and then does a direct rollover of the balance to an IRA, the client’s beneficiary would then be treated as a designated beneficiary of the IRA and even though the 10 year rule would apply, the annual RMDs would be based on the successor beneficiary single life table age.

And should the successor beneficiary be an EDB (eg sibling not more than 10 years younger, or a disabled child) inheriting the IRA would be even more beneficial because inheriting a 401k as a successor beneficiary eliminates EDB treatment since a successor beneficiary can never be an EDB.

Submitted by John Hill on Thu, 2024-08-08 13:31

Thanks Alan. I just learned that the custodian moved the 401k into her name in 2023. Therefore I believe her RMD for 2024 would be calculated from her LE in the Uniform Table. Correct?

As far as the 10 year rule for successor beneficiaries, because she inherited this 401k from her husband, the 10-year rule will apply regardless since her beneficiary will be a successor. Correct?

‘While that is beneficial to the surviving spouse, it is not for the surviving spouse’s beneficiary who will be treated as a successor beneficiary.’ I’m a bit confused on this, can you explain further?

Submitted by Alan - IRA critic on Fri, 2024-08-09 10:36

The 401k was probably just retitled as a beneficiary account in 2023 since Sec 327 was not effective until 2024. She needs to be sure to notify the plan that she is electing to be treated as the employee, not the employee’s beneficiary. Since this is a new provision there is a possibility that the plan cannot yet support this change and she would either have to wait until they do or have the 2024 RMD distributed as a beneficiary RMD using the single life table.

If the direct rollover is made to her own IRA, her beneficiary will be treated as a designated beneficiary (if an individual), not a successor beneficiary. My post above was not clear on that point. But the 10 year rule will apply to her beneficiary anyway unless they qualify as an eligible designated beneficiary, and her beneficiary would also have to take annual RMDs in years 1-9 of the 10 year period.

Again, her beneficiary is only treated as a successor beneficiary if they inherit when her account is still an inherited account. Once she is treated as the IRA owner, her beneficiary is a designated beneficiary.

Submitted by John Hill on Fri, 2024-08-09 11:44

Thanks Alan

Submitted by John Hill on Fri, 2024-08-09 11:59

One more question…sorry. If she had moved the 401k to her IRA in 2023, the 2024 RMD would have been calculated via her age from the uniform life table instead of the current single life table, correct?

Submitted by Alan - IRA critic on Fri, 2024-08-09 12:57

Yes, correct.

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