SUCCESSOR BENEFICIARIES AND 401(k) ROLLOVERS: TODAY’S SLOTT REPORT MAILBAG | Ed Slott and Company, LLC

SUCCESSOR BENEFICIARIES AND 401(k) ROLLOVERS: TODAY’S SLOTT REPORT MAILBAG

By Ian Berger, JD
IRA Analyst
Follow Us on Twitter: 
@theslottreport


Question:

I hope you can help me with this, as I cannot find the answer anywhere or from anyone.

In 2019, my client Frank, passed away. His cousin, Lisa, inherited his IRA. In 2020, Lisa passed away. Her husband, Rob, inherited the IRA. They are all the same age.

Do distributions fall under the 2020 rule or the 2019 rule?

One of the exceptions to the 2020 rule is if the beneficiary is not more than 10 years younger than the original IRA owner, and Rob is not. So, are distributions based on life expectancy

Thank you for any guidance you can provide.

Denise


Answer:

Hi Denise,

Unfortunately, not. Rob would be considered a “successor beneficiary” – a beneficiary of a beneficiary. A successor beneficiary who inherits in 2020 is subject to the 10-year payout rule (not the life expectancy rule) – even if the first beneficiary (Lisa) was using the life expectancy rule.


Question:

My husband has a 401(k) that has some funds that are Roth 401(k) and some that are traditional 401(k). When he retires, will he transfer these to two different IRAs (regular and Roth) or will they go into one account where we will have to allocate withdrawals according to the percentage of the two types of funds?

Renee


Answer:

Hi Renee,

Your husband can (and should) directly roll over the Roth 401(k) funds into a Roth IRA and the pre-tax 401(k) funds into a separate traditional IRA. Assuming he is 59 ½, or older, distributions from the Roth IRA would be completely tax-free once he has held that Roth IRA (or any Roth IRA) for at least five years.

 

 


Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to matt@irahelp.com for approval.

For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at matt@irahelp.com or (516) 536-8282 with any questions.

 

Find members of Ed Slott's Elite IRA Advisor GroupSM in your area.
We neither keep nor share your information entered on this form.
 

I agree to the terms and services:

You may review the terms and conditions here.