401k when a spouse dies

[TrophyWife]

It's my understanding that it's best to rollover a 401k to a personal ira when a spouse dies. And if that spouse was 10 years older than you, skip the inherited ira.

Can anyone confirm this?

[38Chevy454]

It will always be an inherited 401k as to the source of the funds. You can change the date to your 10 year earlier birthday for RMD purposes, but the RMD needs to start when the original person would have turned 70.5, your lower age makes the factor less however. I don't see any reason why changing to a personal IRA would be of any value. It may cause troubles with the RMD rules. Someone better knowledge can confirm the issues with change from inherited 401k to personal IRA.

I assume you are listed as the beneficiary of this inherited 401k?

[Al18]

The Slott Report covers this and similar topics on a regular basis https://www.irahelp.com/slottreport

[rodi]

I'm not sure what you mean by skipping the inherited IRA part if the spouse is 10 years younger... Are you talking about cashing it out - paying taxes on the full amount?

There are two ways to handle the inherited IRA for a spouse - life expectancy - where RMDs must start by the time the original (deceased) owner would have turned 70.5 yo. The life expectancy calculations are based on the recipients age, however. Or you can do a 5 year withdrawal - this avoids the RMDs - but the full value has to be taken out over 5 years. This is only allowed if the original owner was under 70.5 and hadn't started RMDs.

Vanguard has a decent explanation.
https://investor.vanguard.com/inherit/ira-rmd

I have a beneficiary IRA that I inherited from my father. He was already taking RMDs so I take RMDs - but they are based on my age/life expectancy.
I use the Schwab beneficiary RMD calculator to figure out my RMD amount.
Beneficiary RMD Calculator | Charles Schwab

[Sunset]

Not clear on what you mean by skip the inherited IRA. Surely you don't mean refuse it ?

[Bamaman]

And we know to be very careful with RMDs, as they come with a 50% penalty.

Everyone needs to make sure the names on hour beneficiaries are right--and also add secondary beneficiaries.

[ivinsfan]

Is this question for your recently widowed friend? If it is, it's not the type of question where you take a strangers advice on the internet. Especially when it ends up going thru 3 people, the poster, you, your friend.
My advice is be there for her but refer all types of questions like this to a professional...on the ACA thread you're asking people to pick her a health insurance plan..go with the pros in most cases it's even free.

[growing_older]

You need actual legal advice here. I think a spouse can inherit an IRA and unlike any other heir can transfer the contents to her own IRA, not leave as an inherited IRA as required by any other heir. Whether a 401k can receive similar treatment or needs to be converted to an IRA first is unclear. Is this even allowed? Plus these rules have been changing, so we need CURRENT actual legal advice from someone knowledgeable,

I have found several financial advisers who confidently told me procedures and rules that they were very familiar with and had used, but which were incorrect and all their clients made irrevocable mistake transactions and cost themselves dearly. Check and Double Check. These rules are poorly understood, even by professionals who should know better.

[ziggy29]

I dealt with much of this when my dad died, and then again when my mom died. But by the time my dad died, it was already all in an IRA, after rolling over the 401K he had upon his retirement.

I am not a lawyer, but in the case of my dad's passing, my mom simply inherited his IRA as her own, no tax issues involved. When my mom passed, that IRA was broken into four equal pieces for her kids, and while we could inherit the IRA, since she was already over 70 1/2 and taking RMDs from it we also have to take RMDs from our portion of the inherited IRA based on our own life expectancy.

But in reality, a spouse should be able to inherit a 401K like an IRA. Whether they should roll it over into an IRA is a similar decision as to whether someone should roll over their own 401K into an IRA. There are considerations including flexibility in terms of withdrawals and asset protection. (A 401K is a pension plan by law, so it is protected by federal pension laws whereas an IRA's protection varies by state.)

[kaneohe]

Quote:

Originally Posted by ziggy29 .................... When my mom passed, that IRA was broken into four equal pieces for her kids, and while we could inherit the IRA, since she was already over 70 1/2 and taking RMDs from it we also have to take RMDs from our portion of the inherited IRA based on our own life expectancy. ...............................................)

Wondering what would have happened if your mom had not been taking RMDs yet? Wouldn't you still have to take RMDs based on your own life expectancy?

[athena53]

Quote:

Originally Posted by kaneohe Wondering what would have happened if your mom had not been taking RMDs yet? Wouldn't you still have to take RMDs based on your own life expectancy?

I think that if it's not the spouse who inherits, it all needs to be taken out over a 5-year period, with appropriate taxes.

I went through this with DH- an IRA, not a 401(k) and as others have noted this may make a difference. DH was taking RMDs out of it since he was over 70. He named his son (my stepson) beneficiary. In DH's last months we discussed this with DSS and it was clear DSS wanted to liquidate it all ASAP. DH changed the beneficiary to me, I merged it into my own IRA when DH died, with no RMDs till I turn 70 in 2023. I just wrote DSS a check from my after-tax accounts after first taking out the RMD for 2016, the year DH died.

[kaneohe]

Quote:

Originally Posted by athena53 I think that if it's not the spouse who inherits, it all needs to be taken out over a 5-year period, with appropriate taxes. ............................................

seems like you could also do the life expectancy thing based on beneficiary's age https://www.irs.gov/retirement-plans...-beneficiaries