5 Year Distribution Rule Question – Inherited 401(k)

My client is subject to the 5 year distribution rule in a 401(k) plan. Her sister died on 2/19/2015. Is five year calculated by the day, tax year, or 5 tax years after the year of death?

By the day: Has to be taken out by 2/19/2020
Tax year: Has to be taken out by the end of 2019
5 years after the year of death: Has to be taken out by the end of 2020



The deadline for full distribution is 12/31/2020. Client could have avoided the 5 year rule unless her sister passed prior to her RBD and left the plan to her estate. If the plan provisions required the 5 year rule even when client was a designated beneficiary, client would have had to do a direct rollover to an inherited IRA by 12/31/2016 to avoid it.



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