How to handle a spousal inherited 401 K?

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CedarWaxWing
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Joined: Sun Nov 02, 2014 12:24 pm

How to handle a spousal inherited 401 K?

Post by CedarWaxWing » Wed Mar 13, 2019 11:01 pm

A friend of our recently lost her spouse and has the following scenario:

Husband died this year at age 63.
Wife is age 64.

Husband has a 401 K of about 1.5 million (or perhaps more)

The Wife has his and her t IRAs worth a combined 60 K.

SS will not be taken until Wife is 67 (her spouse's full retirement age of 66).
She does not plan on taking any 401 K funds to live on until her RMDs kick in (6 years from now.)


She has a comfortable life insurance settlement and her husband's 40K pension per year to live on until SS and RMDs start.

She thinks she has to put the 401 K in her name and roll it over to an IRA. (Based on her CPAs advice, and the employer's advice).

She was not aware that she could convert her current small T IRA (60K with a basis of 25% or perhaps a bit more) very efficiently this year if she waits until next year to rollover her 401 K... But believes she is required to put the 401 k in her name and roll it over this year.

Does anyone know if the law requires that she put it in her name this year?
Does anyone know if the law requires that she roll the 401 K over this year, assuming that her husbands employer does not require that she do so?
If not, does anyone know if the laws enable her to leave it as a 401 K in her spouses company plan for until at least 2020, or does this depend entirely on the rules of the company plan (which are not confirmed to her satisfaction.)


Her cpa and "advisor" (new to her... but likely an honest person... to charge her about 0.35% AUM) have not discussed the possibility of doing any conversions to Roths... and she was a bit surprised and interested in the idea.

I have suggested that she make VERY sure she is required to roll over the 401 K this year or not... and if she intends to not tap it for a few years, it may be best to leave it where it is...until she at least gets the ira she has converted.(all low cost index funds.. a good plan.)

She will definitely be in a higher tax bracket after her age 70, and likely after her age 66, but in light of her low income and her marital status in 2019, her conversion will likely be taxed in the 12% bracket after her basis is considered.

She does have taxable accounts to cover the taxes on a conversion.


thanks for any thoughts.

Dottie57
Posts: 6941
Joined: Thu May 19, 2016 5:43 pm
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Re: How to handle a spousal inherited 401 K?

Post by Dottie57 » Thu Mar 14, 2019 12:05 am

Google is your friend.

I found this on the web. Not hihly detailed but gives good info.

http://www.401khelpcenter.com/401k_educ ... IngV1pOmhA

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