Passing away with no beneficiary on a 401k
Hi,
I have a client whose sister passed away in 2019 and had a company sponsored retirement plan, but did not have the brother on as the beneficiary (in fact, she didn’t have any beneficiary). The Brother is the sole beneficiary of the estate and we’re in CA. The retirement plan is saying they will not allow the proceeds to be rolled into an Inherited IRA for the brother. Rather, they will only allow a full distribution. I’m guessing that distribution would be taxable to the estate of the sister? Also, since she passed in 2019, I’m assuming the retirement plan has to distribute the funds before the end of the this calendar year, right?
Permalink Submitted by Alan - IRA critic on Sat, 2020-09-19 02:07
A 401k inherited by an estate is not eligible for a rollover to an IRA per IRS Rules. The plan could allow the 401k to remain open with the estate as beneficiary, but plans rarely allow that. Typically, the lump sum distribution is the only option and is required by the plan rules ASAP. The 1099R will be issued with the estate EIN, but the estate can pass the distribution through to the estate beneficiaries to be taxed at their individual personal tax rates. Check with an estate attorney to see what estate fiscal year options might be used to spread taxable income over more than one year for the beneficiaries of the estate.
Permalink Submitted by Phillip Stewart on Wed, 2022-12-14 14:25
The estate received the lump sum distribution Untaxed. There is one named heir in the will and they want the full untaxed amount. Should the estate hold back taxes or should the estate pass on the full amount and let the heir be responsible?
Permalink Submitted by Alan - IRA critic on Wed, 2022-12-14 15:23
Taxes on estates are high. Unless the estate has expenses to pay that can only be supplied by the 401k distribution the distributed amount is typically passed out of the estate to the will beneficiary on a K 1, and the beneficiary reports the income and pays the taxes.