Slott Report Mailbag: Are 401(k) and IRA Distribution Rules Different In Year I Turn 70 1/2?

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

Are the rules different for 401(k) and IRA distributions in the year you turn age 70 1/2? We answer that questions and two others in this week’s Slott Report Mailbag. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.


Good Day Ed and Company,

I have a 401(k). I am 70 years old as of January and they are requiring me to take my full RMD (required minimum distribution) before I am allowed the flexibility to take any other distributions. Is this a restriction to this custodian alone or do all other 401(k) have a similar restriction. I know I have the flexibility I want with an IRA, but I fear the fees are higher with an IRA rather than with my 401(k).

Thank you,


Assuming you are retired from the employer where you have the 401(k) plan, in the year you turn age 70 ½, any distributions you take automatically count towards your RMD first. This is an IRS rule and applies to both plans and IRAs.


I inherited an IRA from my mother almost a year ago. It was worth around $140,000. I took out $30,000 immediately to pay off some debts. So there is about $120,000 in there now because of growth. My husband and I are looking to purchase a franchise. I am wondering if there is a way to use the inherited IRA to purchase this business without a huge tax bill. I have spoken to several IRA financing companies, but they cannot work with an inherited IRA. What are my options?

Maria Ward

If your inherited IRA purchases the franchise and then you or your husband work for that franchise, there’s the risk that a prohibited transaction (PT) will occur. A PT can void the entire inherited IRA and cause a complete taxable distribution of the entire balance. In a recent case, a court ruled that an IRA owner engaged in a PT (self-dealing) when a business owned by his IRA paid him for working there. You should get a legal opinion from an independent professional before investing the inherited IRA.



My mother (age 90) died recently (2013) and according to what I read, the recommended way to re-title the account is John Smith, deceased, IRA for the benefit of Mary Jones.

I asked the banks (2 separate accounts) to do this but they actually did it as follows: “Mary Jones BENE IRA John Smith (deceased)” and “Mary Jones BENE of John Smith”.

Is this the same as the recommendation and if not, do I have any recourse since I did request the former titling in writing as part of the process of documenting her death?

Separately, can these accounts be moved to another trustee or consolidated into a single trustee?

Thank you.

There is more than one way to properly title an inherited IRA. All the titles you mentioned in your question are acceptable. As long as the title includes the name of the decedent, the name of the beneficiary, and uses the social security number of the beneficiary, they are all okay.

Also, accounts inherited from the same decedent can be combined or moved via a trustee-to-trustee transfer.


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