401k of deceased spouse
Client has inherited a 401k from deceased spouse. She will be 59 1/2 on September 25, should we wait to do a direct rollover of these funds to client’s own IRA to avoid any penalty?
Client has inherited a 401k from deceased spouse. She will be 59 1/2 on September 25, should we wait to do a direct rollover of these funds to client’s own IRA to avoid any penalty?
Permalink Submitted by Alan - IRA critic on Fri, 2020-09-11 21:04
There is no need to wait unless client needs to take a distribution from the inherited 401k in the next 2 weeks which is unlikely. If she does a direct rollover to her IRA now, there is no tax or penalty. She can then take IRA distributions penalty free at anytime in the future. Client may want to check on any highly appreciated employer shares in the plan that are eligible for NUA, with NUA taxed at the lower LT Cap gains rates. In addition, if there are any after tax contributions in the plan, client should roll that amount into her Roth IRA as part of a split rollover, or use the after tax contributions amount to reduce the tax basis cost of NUA shares if she also elects to utilize NUA.
Permalink Submitted by Diane Ouellette on Mon, 2020-09-14 18:19
Thanks for your response!