401k mandatory withdraw after parent dies?

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Gambler
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401k mandatory withdraw after parent dies?

Post by Gambler »

my dad is over 70 and not in good health.
if he dies, the 401k $ goes to my mom who is under 70.

does she still have to do mandatory withdraws?
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ERISA Stone
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Re: 401k mandatory withdraw after parent dies?

Post by ERISA Stone »

Gambler wrote:my dad is over 70 and not in good health.
if he dies, the 401k $ goes to my mom who is under 70.

does she still have to do mandatory withdraws?
Here's a link to the IRS website on the subject. http://www.irs.gov/Retirement-Plans/Pla ... ons-(RMDs)
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Don Christy
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Re: 401k mandatory withdraw after parent dies?

Post by Don Christy »

ERISA Stone wrote:
Gambler wrote:my dad is over 70 and not in good health.
if he dies, the 401k $ goes to my mom who is under 70.

does she still have to do mandatory withdraws?
Here's a link to the IRS website on the subject. http://www.irs.gov/Retirement-Plans/Pla ... ons-(RMDs)
Let me fix that for you:
Required-Minimum-Distributions
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Gambler
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Re: 401k mandatory withdraw after parent dies?

Post by Gambler »

Don Christy wrote: Let me fix that for you:
Required-Minimum-Distributions
thx!

Spouses who are the sole designated beneficiary can:
•treat an IRA as their own, or
•base RMDs on their own current age,
•base RMDs on the decedent’s age at death, reducing the distribution period by one each year, or
•withdraw the entire account balance by the end of the 5th year following the account owner’s death, if the account owner died before the required beginning date.

so my mom can treat his IRA the same as hers and do rmd when she turns 70 1/2?

I don't understand the 5yr rule following his death.
Why wait 5yrs?
Last edited by Gambler on Sat Jun 28, 2014 12:18 pm, edited 1 time in total.
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livesoft
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Re: 401k mandatory withdraw after parent dies?

Post by livesoft »

A 401(k) is not an IRA. I would check with the plan sponsor.
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Re: 401k mandatory withdraw after parent dies?

Post by sscritic »

Gambler wrote: Spouses who are the sole designated beneficiary can: •treat an IRA as their own, or
•base RMDs on their own current age,
•base RMDs on the decedent’s age at death, reducing the distribution period by one each year, or
•withdraw the entire account balance by the end of the 5th year following the account owner’s death, if the account owner died before the required beginning date.

so my mom can treat his IRA the same as hers and do rmd when she turns 70 1/2?

I don't understand the 5yr rule following his death.
Why wait 5yrs?
You don't have to wait; you are allowed to wait, but not more than 5 years.
by the end of
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Re: 401k mandatory withdraw after parent dies?

Post by Gambler »

sscritic,

so whichever on that list comes first?
so if my mom is 63, then she must withdraw all his $ by 68?
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Re: 401k mandatory withdraw after parent dies?

Post by sscritic »

Gambler wrote:sscritic,

so whichever on that list comes first?
so if my mom is 63, then she must withdraw all his $ by 68?
No, or means or.

1) or
2) or
3) or
4) by the end of.

If you are detail oriented, you will notice that there is no or in 2, but it is implied.

She has choices. Only one of those choices require her to withdraw all by age 68. Most widows don't do that; they make one of the other choices. Read the four choices again.

This is correct (except for a minor wording error).
so my mom can treat his IRA the same as hers and do rmd when she turns 70 1/2?
(Just take out the word same; it isn't the same as hers, it is hers)
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Re: 401k mandatory withdraw after parent dies?

Post by ERISA Stone »

It is also important to have a copy of the Summary Plan Description as it dictates your mother's options. For example, the document might be written so that any distribution for a former participant must be taken in a lump sum.
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Re: 401k mandatory withdraw after parent dies?

Post by Alan S. »

Gambler wrote:my dad is over 70 and not in good health.
if he dies, the 401k $ goes to my mom who is under 70.

does she still have to do mandatory withdraws?
Your Mom must complete the year of death RMD for the 401k if your Dad did not take the full amount. While she could maintain the 401 as a beneficiary if she wanted AND the plan permitted, she would have to take annual RMDs since your Dad will have passed after his required beginning date.

Given her age, she should roll the plan over to her own IRA. If this is done after the year of death, she will have to take her beneficiary RMD for that year before or at the same time as the rollover of the rest of the balance. Once the funds are in the IRA, RMDs will stop until she reaches 70.5.

There are other considerations to be addressed as well:
1) If the 401k has after tax contributions in it, she should consider isolating the basis and getting those funds into a Roth IRA
2) She needs to name her own successor beneficiaries ASAP; once in the IRA she would name primary beneficiaries
3) If the 401k plan holds highly appreciated employer shares, NUA benefits might be considered. Distribution of stock shares to a taxable account will count toward her RMD for that year. The plan can quote the cost basis per share.

Note that she can only treat an IRA as her own, she cannot be treated as the owner of the 401k, only as a beneficiary. And the 5 year rule would not apply as it only becomes a choice for deaths prior to the required beginning date.
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Re: 401k mandatory withdraw after parent dies?

Post by livesoft »

Are there benefits to have dad roll over the 401(k) to his own IRA right now?
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Re: 401k mandatory withdraw after parent dies?

Post by Alan S. »

livesoft wrote:Are there benefits to have dad roll over the 401(k) to his own IRA right now?
Generally yes. For example if spouse inherited an IRA and rolled it over in a year after the year of death, they are deemed to have owned the IRA the entire year. If they will not reach 70.5 by that year there is no RMD required. That cannot happen with a qualified plan. Further, even if the surviving spouse failed to take RMDs required as beneficiary or makes a contribution, the inherited IRA defaults to ownership. Once owned, the beneficiaries of the surviving spouse will become designated beneficiaries and can use their own life expectancy. In a qualified plan, when the surviving spouse dies, the successor beneficiaries will not be treated as designated beneficiaries.

This assumes dad knows what he is doing. For example, if he rolls over appreciated employer shares, the NUA goes up in smoke. If mom has financial problems and lives in a state that does not protect IRAs, she would be better off in an ERISA plan even with the higher RMDs. There are always exceptions, but I would think that the IRA rollover would be better done after retirement of the plan owner in most cases, or at least once the plan owner begins to mentally or physically decline.
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Re: 401k mandatory withdraw after parent dies?

Post by LadyGeek »

The wiki has some background info: Inheriting an IRA

I hope your Mom is taking care of the other aspects: WIll, living will (advanced health care directive), medical power of attorney, durable power of attorney.

See: Estate planning, especially the two forum threads under "External links".
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Re: 401k mandatory withdraw after parent dies?

Post by Gambler »

LadyGeek wrote:The wiki has some background info: Inheriting an IRA

I hope your Mom is taking care of the other aspects: WIll, living will (advanced health care directive), medical power of attorney, durable power of attorney.

See: Estate planning, especially the two forum threads under "External links".
THX!
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