Hi, I am hoping someone can help clarify regarding 401k options where the owner is deceased and no beneficiary designated. A relative is executor of an estate where the unmarried deceased party held a 401k account totaling close to 1 million dollars. There were no designated beneficiaries on the account and the plan documents state the funds must be rolled over within 90 (now 30) days or the funds will be disbursed in a lump-sum. Further, the plan documents indicate the estate is the payable entity when there is no spouse or designated beneficiary.
To further complicate matters, the probate attorney has suddenly passed away and had no partners, which has caused great distress and difficulties in obtaining advice and original documents. The trust has 7 beneficiaries (one of which is charity).
From conducting research it appears this question has come up more than once in the past. Other posts have stated that an estate is not and cannot be a designated beneficiary and, therefore, is not eligible to receive a rollover from a 401k. The other postings point to 26 U.S.C. 402(c)(11) as the legal cite that prohibits a rollover from a 401k. Looking at the citation I do not see where it specifically disallows a rollover from a 401k, but through research I currently have the following interpretation:
Prior to 2007 rollovers from all types qualified plans (including 401k plans) to undesignated non-spouse beneficiaries were not permitted. Beginning in 2007 402(c)(11) permitted rollovers in limited circumstances from qualified trusts (specifically 401a plans) to non-spouse beneficiaries. This does not include 401k plans. Therefore, 402(c)(11) does not specifically disallow rollovers from 401k plans, but there is currently no area of law that would permit a rollover from a 401k to a non-spouse (undesignated) beneficiary.
Is the above interpretation correct? Or, is there a possibly better citation out there? Other family members have contacted multiple large brokerage firms and inquired if the funds may be rolled over. The brokerage firms have advised that a rollover to an estate account is possible and allowed. I have listened in to more than one call and the situation presented was accurate. I think the individuals who answer inquiries at these firms are thinking a rollover from one qualified plan to another should be ok, but lack technical knowledge in this specific area. Additionally, we have inquired with more than one CPA and have not been able to obtain clear answer.
Having heard a rollover should be ok from more than once source, the family members have a hard time accepting my interpretation that facilitating a rollover is not permissible. With time running short until the lump-sum is paid and considering the tax implications, tensions are running a bit high and I want to be able to provide an accurate legal cite and interpretation to the estate beneficiaries to help ensure the process continues on the right path. Any help would be greatly appreciated.