403B no beneficiary designation goes to the estate

Submitted by Bethany miller on Tue, 2018-07-17 03:03

Is it better to take a lump sum or take the 5 year distributions for 2 403B’s that are going to the estate? Whose taxes do the distributions go on – estate or personal? Does it matter the amount of money? One was in the 3000$s and one was in the 17000$s.

The estate will be split between a minor and a non minor.



Submitted by William Tuttle on Tue, 2018-07-17 05:42

  • It would generally be better to maintain tax deferral for the longest priod of time. However, you would also want to consider the marginal tax rate.
  • Inherited retirement plan distributions of a minor are considerd unearned income subject to the “kiddie” tax.
  • The adult could certainly take their ($3K + $17K = $20K) / 2 = $10K in a lump sum distribution assuming this does not cross a marginal tax bracket boundry.
  • The minor would be better off taking their $10K as five (5) equal $2K distributions. This would allow the unearned income standard deduction (2018 = $1050) and in 2018 up to the next $1050 taxed at the minors rate (10%). This is would allow the initial net tax liability to be <= 5% and decrase each year. If you did it as a lump sum, the amount > $2100 would be taxed at trust marginal rates.
  • Alan can go into the details of how the estate could get this into an inherited IRA to allow the 5-year distributon period.


Submitted by Bruce Steiner on Tue, 2018-07-17 13:41

  • It will usually be better to spread it over 5 years (actually 7 taxable years since the 5 years is 5 years from the end of the year of death, and estates may use a fiscal year).  That avoids bunching the income in a single year.
  • On the other hand, the amount involved here is small, so it may not make sense to keep the estate open that long.  The estate can use its administration expenses against this income, and can distribute the rest if the beneficiaries will be in lower tax brackets.
  • The lawyer handling the estate should be able to give you more specific advice, since he/she knows the facts.


Submitted by Alan - IRA critic on Tue, 2018-07-17 15:39

With an estate as the listed or default beneficiary under a qualified plan, there is no option of a direct rollover from the plan to an inherited IRA, which would have been the only possibility of inherited IRAs. And the 403b provisions will likely indicate a lump sum distribution to the estate to divest themselves of the inherited assets and avoid any possible litigation or executor related problems that could arise within the estate. At that point, the entire balance is taxable to the estate (lump sum 1099R to estate EIN), and while the estate could retain the distribution at the higher tax rates, in most cases it would be passed through to the estate beneficiaries. Not clear if kiddie tax issues would justify the estate paying the taxes, but it is possible given the small amount the minor will inherit.



Add new comment

Log in or register to post comments