If a spouse inherits a 401k and it’s set up as a beneficiary 401k, can the spouse roll over the bene 401k to an IRA in their name (spousal transfer)? Are there any additional steps or things to avoid (direct rollover only, etc?)
Thanks Alan. So a spouse with an inherited/beneficiary 401k can directly roll into an IRA in their own name. It doesn’t have to go from beneficiary 401k to beneficiary IRA, then spousal transfer to IRA in own name, correct?
The spouse inheriting the account is not quite 59.5 and the deceased passed this year at age 61. It appears the 401k has actually been transferred to the spouse in her name, so the question is likely a moot point, but I didn’t want to overlook anything.
Correct, the direct rollover can go straight to the owned IRA.
The 401k cannot treat her as the actual owner, but could treat her as the participant for RMD purposes. Under Secure 2.0 this treatment is automatic because the deceased spouse passed prior to RBD. Although there are no RMDs due for several years, treating her as the participant will allow her to take distributions prior to 59.5 with no 10% penalty. Perhaps she should keep it there until 59.5 unless she is totally sure that no distributions will be needed at 59.5. Once she reaches 59.5, it would be beneficial to do a direct rollover to her own IRA. Her own RMDs do not start until age 75.
If husband passed this year, she may want to consider rolling some over to a Roth IRA, since this is the last year she can file jointly at the lower rates.
Permalink Submitted by Alan - IRA critic on Fri, 2024-09-20 21:33
The spouse can roll over the inherited IRA anytime to their own IRA, but there is now a third option to consider. The surviving spouse can leave the balance in the 401k and elect to be treated as the participant, but for RMD purposes only. This election is automatic if their spouse passed prior to their RBD. They can then use the Uniform Table for RMDs just as they would with their own IRA, but not have to start RMDs until the deceased spouse would have reached RMD age. And they can still roll the balance into their own IRA whenever they wish.
All of these options have RMD implications, so the best choice cannot be selected without considering the age of the deceased spouse in the year of death and the age of the surviving spouse.
Any rollover to an IRA should be a direct rollover to avoid mandatory withholding.