Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Inherited 401K / IRA - Distribution?
Old 08-15-2016, 09:53 AM   #1
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 141
Inherited 401K / IRA - Distribution?

Most of our assets are in 401K / IRA accounts. I'm 57 and planning to FIRE in a few months and my wife is 49. We plan to use my 401K (rule of 55) along with cash accounts to fund our retirement for a number of years. We are holding off on taking pensions and SS for as long as possible.

So if I die, can my DW continue to use my 401k without penalty (inherited 401K for DW) or does it have to roll into a 401K for her that can't be used (without penalty) until she reaches 59-1/2? I have two joint/survivor pensions that are non-COLA'd and will not pay her expenses as she'd only get 50%.
__________________

__________________
Steelart99 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-15-2016, 10:12 AM   #2
Thinks s/he gets paid by the post
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 3,480
I'm pretty sure the MDIB rules follow your DOB but I may be wrong. There should be an IRS publication that addresses this.
__________________

__________________
Swing hard, look up
Big_Hitter is online now   Reply With Quote
Old 08-15-2016, 12:02 PM   #3
Moderator
Walt34's Avatar
 
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 14,697
Quote:
Originally Posted by Steelart99 View Post
So if I die, can my DW continue to use my 401k without penalty (inherited 401K for DW) or does it have to roll into a 401K for her that can't be used (without penalty) until she reaches 59-1/2? I have two joint/survivor pensions that are non-COLA'd and will not pay her expenses as she'd only get 50%.
As I understand it, a spouse (but no one else) has the option of taking it one of two ways. She can user either her age or your age and take the distributions that way, whichever works to her best advantage. But once she picks either age, that decision is final so RMD's may be a factor in deciding.
__________________
I heard the call to do nothing. So I answered it.
Walt34 is offline   Reply With Quote
Old 08-15-2016, 08:38 PM   #4
Moderator
Sarah in SC's Avatar
 
Join Date: Sep 2005
Location: Charleston, SC
Posts: 13,417
The plan really dictates what you can do with the 401k assets. Ideally you would leave it in the plan, under your name, as an inherited 401k. In that case, she would not pay a penalty on early withdrawals from it before 59.5.

If she rolls it into an IRA in her name, she would have the penalty for early withdrawal.

On any IRA assets, I'm pretty sure that she would have to roll those into her own IRA (would not recommend the inherited IRA option because spousal rollover is generally better).

Consult with your plan administrator and also with a good tax person to cover all this in more detail.
__________________
“One day your life will flash before your eyes. Make sure it's worth watching.”
Gerard Arthur Way

Sarah in SC is offline   Reply With Quote
Old 08-15-2016, 08:57 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 1,997
Quote:
Originally Posted by Sarah in SC View Post
The plan really dictates what you can do with the 401k assets. Ideally you would leave it in the plan, under your name, as an inherited 401k. In that case, she would not pay a penalty on early withdrawals from it before 59.5.

If she rolls it into an IRA in her name, she would have the penalty for early withdrawal.

On any IRA assets, I'm pretty sure that she would have to roll those into her own IRA (would not recommend the inherited IRA option because spousal rollover is generally better).

Consult with your plan administrator and also with a good tax person to cover all this in more detail.
Looking at the IRS web site it depends on how the IRA is titled, if its title indicates it is an inherited IRA then no 10% penalty is due:https://www.irs.gov/taxtopics/tc557.html

So perhaps the 401ks should be rolled over to an IRA now, since it is less clear about 401ks. (one should check with a tax expert on the proper way to structure the accounts so that no 10% penalty is due.
__________________
meierlde is offline   Reply With Quote
Old 08-15-2016, 11:27 PM   #6
Recycles dryer sheets
GreenER's Avatar
 
Join Date: Nov 2014
Location: Pastures
Posts: 133
Depending on your health and expected longevity and given the fact that your wife is younger and would only get 50% of your non cola'd pension, it seems to me you might better take the pension sooner while it still has more purchasing power and save more of your 401K for the latter part of your retirement since she would get 100% of anything remaining in the 401K if you were to die before her.
__________________
"One's destination is never a place, but a new way of seeing things" Henry Miller
GreenER is offline   Reply With Quote
Old 08-16-2016, 05:24 AM   #7
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 141
Quote:
Originally Posted by GreenER View Post
Depending on your health and expected longevity and given the fact that your wife is younger and would only get 50% of your non cola'd pension, it seems to me you might better take the pension sooner while it still has more purchasing power and save more of your 401K for the latter part of your retirement since she would get 100% of anything remaining in the 401K if you were to die before her.

That is actually a good point ... obvious now that you stated it. She is concerned that should something happen to me, she would not have access to the funds we'll be using in our early retirement (i.e., my 401K).

I did not want to roll those funds (401K from current company) over to an IRA yet as the "Rule of 55" makes the money available to me now without penalty.
__________________
Steelart99 is offline   Reply With Quote
Old 08-16-2016, 05:27 AM   #8
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 141
Quote:
Originally Posted by Sarah in SC View Post
The plan really dictates what you can do with the 401k assets. Ideally you would leave it in the plan, under your name, as an inherited 401k. In that case, she would not pay a penalty on early withdrawals from it before 59.5.

If she rolls it into an IRA in her name, she would have the penalty for early withdrawal.

On any IRA assets, I'm pretty sure that she would have to roll those into her own IRA (would not recommend the inherited IRA option because spousal rollover is generally better).

Consult with your plan administrator and also with a good tax person to cover all this in more detail.

DW was concerned that should I die anytime soon (not in my plan ... ), that she would not have access to any of the funds we are planning to use in early retirement, i.e., my 401K. I'm gonna have to research this a bit more.
__________________
Steelart99 is offline   Reply With Quote
Old 08-16-2016, 05:33 AM   #9
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 141
Quote:
Originally Posted by meierlde View Post
Looking at the IRS web site it depends on how the IRA is titled, if its title indicates it is an inherited IRA then no 10% penalty is due:https://www.irs.gov/taxtopics/tc557.html

So perhaps the 401ks should be rolled over to an IRA now, since it is less clear about 401ks. (one should check with a tax expert on the proper way to structure the accounts so that no 10% penalty is due.

Good link ... seems to indicate that one of the exceptions to this additional 10% tax for early distributions is:
  • Made to a beneficiary or estate on account of the IRA owner's death
So, it would seem that DW could use my IRA to fund her expenses for a few years. Unfortunately, my IRA is only about 1/2 of the value of the 401K (with my current company) that I'd planned to use in ER under the "Rule of 55". Can't roll that over to an IRA yet as it would then be unavailable to me until 59-1/2.
__________________
Steelart99 is offline   Reply With Quote
Old 08-16-2016, 01:50 PM   #10
Recycles dryer sheets
 
Join Date: Jul 2014
Location: Undisclosed
Posts: 67
If she rolls it/them into her own IRA accounts, she can do 5+ years of 72T distributions without having to pay the 10% tax for early distributions.
__________________
N02L84ER is offline   Reply With Quote
Old 08-17-2016, 09:56 AM   #11
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 141
Quote:
Originally Posted by N02L84ER View Post
If she rolls it/them into her own IRA accounts, she can do 5+ years of 72T distributions without having to pay the 10% tax for early distributions.
Ahhhhh ... another aspect of our tax laws that I had no idea about. More research ...

Thanks!
__________________
Steelart99 is offline   Reply With Quote
Old 08-17-2016, 10:19 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 1,997
Quote:
Originally Posted by Steelart99 View Post
Good link ... seems to indicate that one of the exceptions to this additional 10% tax for early distributions is:
  • Made to a beneficiary or estate on account of the IRA owner's death
So, it would seem that DW could use my IRA to fund her expenses for a few years. Unfortunately, my IRA is only about 1/2 of the value of the 401K (with my current company) that I'd planned to use in ER under the "Rule of 55". Can't roll that over to an IRA yet as it would then be unavailable to me until 59-1/2.
You might check if she could roll the 401k over to an IRA if you die, and then get the penalty free distributions.
__________________
meierlde is offline   Reply With Quote
Old 08-19-2016, 07:47 PM   #13
Dryer sheet aficionado
FIREchief's Avatar
 
Join Date: Aug 2016
Posts: 38
OP: if you haven't already done so, you may wish to contact your 401k administrator to find out exactly what distribution options they make available to a surviving spouse. I was surprised to find out that my Megacorp 401k (which is normally pretty good) requires an immediate 100% rollovers or withdrawal when the plan participant passes away.
__________________
FIREchief is offline   Reply With Quote
Old 08-20-2016, 11:01 AM   #14
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 141
Quote:
Originally Posted by FIREchief View Post
OP: if you haven't already done so, you may wish to contact your 401k administrator to find out exactly what distribution options they make available to a surviving spouse. I was surprised to find out that my Megacorp 401k (which is normally pretty good) requires an immediate 100% rollovers or withdrawal when the plan participant passes away.

Now that's an interesting issue. I will give them a call this next week and check on that. Thanks for the pointer!
__________________

__________________
Steelart99 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Confused choosing between: 401K, Roth 401K, Roth IRA or Traditional IRA? krldrummerboy FIRE and Money 22 05-26-2016 12:46 PM
Jointly Owned Non-spousal inherited IRA WilliamG FIRE and Money 24 03-24-2013 04:49 PM
Advice on withdrawals from inherited IRA? mb FIRE and Money 1 07-28-2008 10:38 PM
Inherited IRA, when to take RMD this year? Gworker Other topics 11 01-28-2008 01:38 PM

 

 
All times are GMT -6. The time now is 08:49 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.