[Spouse recently passed away. Please help me handle his financial matters]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
water2357
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by water2357 »

All 401k's are governed by ERISA rules, all have plan documents and plan administrators and plan trustees. All of these documents are filed with the IRS and DOL (department of labor). All of these plans are required to provide the employee with the rules of the plan (including Summary Plan Descriptions, SPDs) and Summary Annual Reports (SARs). Either or both your husband's employer and Fidelity has to have copies of the plan documents or they could not administer the plan. You have the legal right to get a copy of the 401K Plan, if you cannot get understandable answers from the employer or Fidelity. The employer at a minimum should be providing you with the name and address of the plan administrator and a copy of your rights to contact this administrator and get a copy of the 401K Plan.

If you can't get anywhere with the employer or Fidelity contact DOL.

https://www.dol.gov/general/topic/retir ... pantrights

This link has the direct contact info to get plan documents, SPDs, etc.
https://www.dol.gov/general/topic/retir ... nformation

The 401K Plan document should contain all the rules regarding when funds must be withdrawn under various circumstances.

Generally, 401K Plans are set up so that employees are required to withdraw their accounts by age 65, if the employee is no longer with the company. Generally, what most employees do is have the plan administrator/trustee "rollover their account directly" to a traditional IRA (if 401K was a traditional 401K). This new traditional IRA is titled as a "Rollover IRA" or conduit IRA. It only holds employer monies and, at least when the employee is the owner, allows the employee to sometime in the future roll the money into a retirement plan with a new employer. This money cannot be mixed with other IRA monies. The "rollover IRA", conduit IRA preserves most if not all of ERISA protections as if the monies were still in the 401K. If someone other than the original employee owns the new IRA or sets up an inherited IRA, there have been some court cases that may not afford the ERISA protections after the original employee is deceased and the monies are in the new IRA. To really understand creditor protections, it would be wise to ask an expert on this subject.

Here is a link that covers some issues about creditor protection and mentions inherited IRAs. Have no idea how accurate this is, but appears to be reasonable.

https://www.investopedia.com/articles/i ... wsuits.asp

As noted in the link, the law passed in 2005 affords some bankruptcy protection to all IRAs now, not just to "Rollover IRAs" (conduit IRAs).

In any case, if you are forced by the 401K Plan to withdraw the account, always do it as a direct trustee to trustee transfer to another IRA, do not get a check from the trustee written out to you. There can be a lot of complications if you get a check,up to and including you having to pay a penalty and all the income tax on the entire account now.

The rules for inheriting a 401K account as a spouse are distinct from what the actual employee options are. Someone who has direct experience with this topic should be able to provide more information.
Last edited by water2357 on Fri Apr 30, 2021 8:05 pm, edited 2 times in total.
clip651
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by clip651 »

LadyGeek wrote: Fri Apr 30, 2021 7:02 pm This should help reduce your anxiety a bit:

You never need to sign your husband's name when you endorse a check. Find an account that will take the deposit. Then, all you have to do is print "For Deposit Only" on the back of the check. The bank personnel can confirm, but that's basically all you need to do.

Actually, that holds true everywhere. It's why you can do mobile deposits with a check image and "For mobile deposit only" printed on the back.
I believe there are a few exceptions to this. Certain types of checks require an actual endorsement from the person they are made out to. One example I ran into was a check from car insurance to settle a claim. In that case, I had them reissue the check to the surviving spouse. Both were on the car insurance, and accident was prior to one spouse's death, but the claim settled after the spouse's death.
water2357
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by water2357 »

If you do have to open an estate (probate) and you are the executor and you have the short certificates, you are responsible for handling all of the funds in the estate and getting them to the appropriate heirs, as well as handling all of the other paper work/filings. So, if you get a check in your husband's name only, you take the short certificate and death certificate to the bank and tell them where you want the check deposited. Maybe some banks will insist on an estate account, others will not.
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by LadyGeek »

clip651 wrote: Fri Apr 30, 2021 7:40 pm I believe there are a few exceptions to this. Certain types of checks require an actual endorsement from the person they are made out to. One example I ran into was a check from car insurance to settle a claim. In that case, I had them reissue the check to the surviving spouse. Both were on the car insurance, and accident was prior to one spouse's death, but the claim settled after the spouse's death.
Thanks. That may be legal complication due to the situation, so it's best for Bennie to not put anything on the back of the check until she's at the bank and they tell her how to endorse it.
water2357 wrote: Fri Apr 30, 2021 7:37 pm In any case, if you are forced by the 401K Plan to withdraw the account, always do it as a direct trustee to trustee transfer to another IRA, do not get a check from the trustee written out to you. There can be a lot of complications if you get a check,up to and including you having to pay a penalty and all the income tax on the entire account now.
Translation: The 401(k) provider should make the check out to Fidelity (or wherever the money goes), not to you.

It's standard procedure for both Fidelity and the employer.

What should happen - The employer makes the check out to Fidelity FBO (For the Benefit Of) Bennie. You get the check and forward it to Fidelity with the ensuing paperwork.
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water2357
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by water2357 »

"What should happen - The employer makes the check out to Fidelity FBO (For the Benefit Of) Bennie. You get the check and forward it to Fidelity with the ensuing paperwork."

That should work. I've generally gotten the trustees to work with each other and get them to push or pull the account directly from one trustee to the next, with no check ever being written out, just the paper work to do the transfer. If you stay with Fidelity (if it is at all like Vanguard), you can monitor, if not do some of the transition, on line. However, with the whole inheriting situation, I'm betting its going to take some phone calls and paper work, but maybe not a check. If it were your own employee 401k moving to your own IRA, with the same trustee, that can often be done entirely on line, well maybe with at least one phone call.
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Bennie
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by Bennie »

Yes - Thank you so much again! - the Fidelity rep said he could step me thorugh online to transfer the money from the company beneficiary 401k (the company already had Fidelity transfer the money from my hunsband's 401k to a beneficiary 401k, with my name and social security number on it, apparently so that I own the money now and can tranfer it and Fidelity is allowed to work with me) to an IRA or inherited IRA in my name.

I have not done it yet because I wanted to understand better what the advantages and disadvantages are to 1) leave the money in the 401k, 2) transfer to an IRA, and 3) transfer to an inherited IRA.

The question of investments is secondary. In any case (1, 2, or 3) I could decide where the money is held/invested and that may be done later - as discussed in this thread a MM may be best for a few months to a year - I would lose out on market gains and miss any dips - inflation would not kill my buying/bill paying power if I wait 12 months to come up with a trusted fnancial advisor and a reasonable investment plan, compared to the 10-40 years I may need to depend on this money.

Thank you so much @water2357
water2357 wrote: Fri Apr 30, 2021 8:20 pm "What should happen - The employer makes the check out to Fidelity FBO (For the Benefit Of) Bennie. You get the check and forward it to Fidelity with the ensuing paperwork."

That should work. I've generally gotten the trustees to work with each other and get them to push or pull the account directly from one trustee to the next, with no check ever being written out, just the paper work to do the transfer. If you stay with Fidelity (if it is at all like Vanguard), you can monitor, if not do some of the transition, on line. However, with the whole inheriting situation, I'm betting its going to take some phone calls and paper work, but maybe not a check. If it were your own employee 401k moving to your own IRA, with the same trustee, that can often be done entirely on line, well maybe with at least one phone call.
water2357 wrote: Fri Apr 30, 2021 7:37 pm All 401k's are governed by ERISA rules, all have plan documents and plan administrators and plan trustees. All of these documents are filed with the IRS and DOL (department of labor). All of these plans are required to provide the employee with the rules of the plan (including Summary Plan Descriptions, SPDs) and Summary Annual Reports (SARs). Either or both your husband's employer and Fidelity has to have copies of the plan documents or they could not administer the plan. You have the legal right to get a copy of the 401K Plan, if you cannot get understandable answers from the employer or Fidelity. The employer at a minimum should be providing you with the name and address of the plan administrator and a copy of your rights to contact this administrator and get a copy of the 401K Plan.

If you can't get anywhere with the employer or Fidelity contact DOL.

https://www.dol.gov/general/topic/retir ... pantrights

This link has the direct contact info to get plan documents, SPDs, etc.
https://www.dol.gov/general/topic/retir ... nformation

The 401K Plan document should contain all the rules regarding when funds must be withdrawn under various circumstances.

Generally, 401K Plans are set up so that employees are required to withdraw their accounts by age 65, if the employee is no longer with the company. Generally, what most employees do is have the plan administrator/trustee "rollover their account directly" to a traditional IRA (if 401K was a traditional 401K). This new traditional IRA is titled as a "Rollover IRA" or conduit IRA. It only holds employer monies and, at least when the employee is the owner, allows the employee to sometime in the future roll the money into a retirement plan with a new employer. This money cannot be mixed with other IRA monies. The "rollover IRA", conduit IRA preserves most if not all of ERISA protections as if the monies were still in the 401K. If someone other than the original employee owns the new IRA or sets up an inherited IRA, there have been some court cases that may not afford the ERISA protections after the original employee is deceased and the monies are in the new IRA. To really understand creditor protections, it would be wise to ask an expert on this subject.

Here is a link that covers some issues about creditor protection and mentions inherited IRAs. Have no idea how accurate this is, but appears to be reasonable.

https://www.investopedia.com/articles/i ... wsuits.asp

As noted in the link, the law passed in 2005 affords some bankruptcy protection to all IRAs now, not just to "Rollover IRAs" (conduit IRAs).

In any case, if you are forced by the 401K Plan to withdraw the account, always do it as a direct trustee to trustee transfer to another IRA, do not get a check from the trustee written out to you. There can be a lot of complications if you get a check,up to and including you having to pay a penalty and all the income tax on the entire account now.

The rules for inheriting a 401K account as a spouse are distinct from what the actual employee options are. Someone who has direct experience with this topic should be able to provide more information.
Very helpful! This is what I suspected but did not know how to ask. I am sure there are legal documents governing the rules (IRS, employer, Fidelity), fees, and options surrounding these vehicles of holding and inheriting retirement funds. What is daunting is that it seems like everyone understands just pieces of these rules (the ones they work with on a regular basis), everyone wants you to trust them and do as they say, and I am not sure I can read and understand these documents myself and have no trusted professional to consult. Fiding one is a whole other can of worms. My husband used to just do what everyone told him and occasionally I saved him from a bad mistake - now I am in deeper waters myself. One way of handing it, which may become inevitable, is just to do as he did and trust people who talk to you and hope things will work out alright. And, as stated in previous posts, I have numerous examples of having gotten bad advice from paid professionals, too. Sometimes it seems like noone can keep track of all the laws and rules for each situation. Sigh. I already followed the banker's advice to take Alan's name off our common account. Well, that is done now. I would not have done it on my own. Not yet.

Sorry - just venting a bit - I think I need more time to study and think. The information you provide is a life saver!

If you have more ideas about options 1), 2) or 3) above, please let me know!
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by LadyGeek »

Bennie wrote: Sun May 02, 2021 12:18 pm I have not done it yet because I wanted to understand better what the advantages and disadvantages are to 1) leave the money in the 401k, 2) transfer to an IRA, and 3) transfer to an inherited IRA.
My vote is (2). Why? You want total control of your own money. Companies change their 401(k) plans all the time. That fund you love? Sorry, it's going away. Instead pick something else that's not as good and has a higher cost.

Also, you're rolling the dice when it comes to customer support. If the company is good, you might get someone who can handle your questions. Otherwise, they may not understand or be able to do the transaction for you. Been there, done that with my prior employer. Frustrating, at best.

You'll have none of these problems with Fidelity. Anything you want to do, any fund, all the time.

I rolled my late husband's IRA into mine as "treat as your own". I now have a single IRA and Roth IRA. Easy.
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techiegirl
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by techiegirl »

LadyGeek wrote: Sun May 02, 2021 12:58 pm
Bennie wrote: Sun May 02, 2021 12:18 pm I have not done it yet because I wanted to understand better what the advantages and disadvantages are to 1) leave the money in the 401k, 2) transfer to an IRA, and 3) transfer to an inherited IRA.
My vote is (2). Why? You want total control of your own money. Companies change their 401(k) plans all the time. That fund you love? Sorry, it's going away. Instead pick something else that's not as good and has a higher cost.
Also depends on how old you are. If you’re under 59.5, you would be better off with #3, so you can take withdrawals without penalty, as a spousal inherited IRA. I was 49 when my husband passed away, so I opted for #3.
water2357
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by water2357 »

Inheriting a 401K account can present some different issues than inheriting an IRA. Inheriting an IRA is covered in detail in IRS publication 590B as mentioned previously.

Here is an article that may explain some of the options available to you when inheriting a 401K account, including where the spouse is the beneficiary

https://www.kiplinger.com/slideshow/ret ... index.html

Since you are younger than 59 1/2 and may want to access the 401K monies now without paying a penalty, you may want to consider option #3. That is assuming that option #3 is like the inherited IRA option that allows the "employee/husband" to remain the "owner" with the spouse as beneficiary. Make sure the account is titled properly so there is no question that you will be able to withdraw funds penalty free. Once only your name is on the account, then you must follow the rules for someone your age, and before 59 1/2 withdrawal penalties will apply.

If your main concern is how to deal with this inherited 401K account, then you need to get at least a copy of the "Summary Plan Description" of the plan, if not the actual plan document. The "Summary Plan Description" is written in understandable form for all plan participants. The Plan Document is also understandable and contains all the details of what participants and their beneficiaries can and can't do, but it does contain a lot of additional information about administering the plan that may not be of concern to you.

Actuaries that specialize in retirement plans (as well as some lawyers, certified financial planners, CPAs) work with these documents on a regular basis and can easily interpret them if you need more professional assistance on the 401K. I don't know if the following would apply directly to your case, but the American Academy of Actuaries has a program that offers some limited assistance to those with questions about pension plans, if nothing else they may be able to point you in the right direction, free of charge, here is a link to their pro bono program

https://www.actuary.org/content/pension ... e-list-pal

Also, as mentioned previously, the Department of Labor provides assistance in obtaining retirement plan documents and on other employee questions, here is another link where it may be possible to ask questions in addition to the one I listed earlier.

https://www.dol.gov/agencies/ebsa/about ... n/ask-ebsa

IRA rules are available through the IRS and are readily accessible to anyone. The rules for a specific 401K, while governed by various laws, can differ somewhat for each 401K plan. So, it is difficult to give precise answers on a 401K without having read the rules (SPD, plan document, etc) for that specific 401K plan. Start with your husband's company's HR department and Fidelity if they are the 401K plan trustee/custodian/administer accounts. Find the plan adminstrator, get copies of the documents, find out your options before retitling 401K accounts or doing any direct rollovers whether to a beneficiary 401K, beneficiary IRA or your own IRA.

For comparison when you find out all your 401K options, here are the options for a spouse inheriting an IRA from IRS pub 590B

"Inherited from spouse.
If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can:
1.Treat it as your own IRA by designating yourself as the account owner;
2.Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a:
a.Qualified employer plan,
b.Qualified employee annuity plan (section 403(a) plan),
c.Tax-sheltered annuity plan (section 403(b) plan),
d.Deferred compensation plan of a state or local government (section 457 plan); or
3.Treat yourself as the beneficiary rather than treating the IRA as your own."

An option similar to 3. above is what would preserve penalty free withdrawals for someone younger than 59 1/2, as long as the account is titled to reflect this option.
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by LadyGeek »

My interpretation:
Bennie wrote: Sun May 02, 2021 12:18 pm Yes - Thank you so much again! - the Fidelity rep said he could step me thorugh online to transfer the money from the company beneficiary 401k (the company already had Fidelity transfer the money from my hunsband's 401k to a beneficiary 401k, with my name and social security number on it, apparently so that I own the money now and can tranfer it and Fidelity is allowed to work with me) to an IRA or inherited IRA in my name
Bennie states she now has a beneficiary 401(k), which I assume is what's stated in the article:
In some cases, a surviving spouse might want to remain a named beneficiary. Beneficiaries who are younger than age 59½, for instance, don’t pay the 10% penalty on early withdrawals.
I'm not clear on what you're saying in the underlined sentence.
water2357 wrote: Sun May 02, 2021 5:10 pm https://www.kiplinger.com/slideshow/ret ... index.html

Since you are younger than 59 1/2 and may want to access the 401K monies now without paying a penalty, you may want to consider option #3. That is assuming that option #3 is like the inherited IRA option that allows the "employee/husband" to remain the "owner" with the spouse as beneficiary. Make sure the account is titled properly so there is no question that you will be able to withdraw funds penalty free. Once only your name is on the account, then you must follow the rules for someone your age, and before 59 1/2 withdrawal penalties will apply.
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water2357
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by water2357 »

If you inherit an IRA and then retitle (either by retitling, rolling over or doing/not doing a number of things listed in IRS pub 590B) the IRA account under only your name (i.e. the name of the person who was the beneficiary), you will no longer be able to use the original owner's age to determine some of the rules for withdrawing funds from the IRA, whether that is for RMDs or early withdrawals, etc. For example, a spouse who inherits the other spouse's IRA and titles it with the deceased spouse's name and the surviving spouse still as the beneficiary, does not have to take RMDs until the deceased spouse would have obtained the age of 72 (maybe this would benefit an older surviving spouse, whereas being able to take penalty free withdrawals based on an older deceased spouse's age may benefit a younger surviving spouse?). And these lenient withdrawal rules are generally only available to a surviving spouse.

So, the title wording has to contain something like "John Smith IRA for the Benefit of Jane Smith", but the financial institution should have appropriate wording so it's clear that Jane Smith is not the sole owner.

So, for spouses who are younger than the deceased spouse, it can be beneficial to keep the IRA as a beneficiary IRA, at least for some time (maybe until they would have to take RMDs based on the older deceased spouse's age?). I don't have the particulars on the OPs 401K, so it may or may not allow the same options as IRAs and it may or may not allow the 401K to be rolled over to an IRA like #3 described in IRS pub 590B. Perhaps that is what Fidelity has allowed the OP to do and has already done, but I'm not entirely clear on if that is the case.

If you title the IRA in only your own name, then it gets treated under the law, like it is your IRA, with rules applied to it based on your age. This may be fine (or not) for a surviving spouse who is the same age or older than the deceased spouse (former owner), but for a younger surviving spouse there are more things to consider, such as those mentioned above.

If there are more exceptions for surviving spouses of 401Ks you'd need the 401K plan document or if there are more exceptions for surviving spouse's of IRAs, then perhaps someone else can add to this discussion.

Other than what I've stated, I'm not sure what all you are asking?
Last edited by water2357 on Tue May 04, 2021 2:56 pm, edited 2 times in total.
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by LadyGeek »

That's all I wanted to know, as the underlined sentence didn't make sense to me in that paragraph. Your explanation helps, thanks.
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water2357
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Re: [Spouse recently passed away. Please help me handle his financial matters]

Post by water2357 »

I know this has probably been stated before about inheriting retirement plan account options, but if a surviving spouse wants to keep the advantages afforded to a surviving spouse under a particular option, like being able to base withdrawal rules on the deceased spouse's age, generally,

1) Make sure the account has the proper title and any subsequent account has the same type of title
2) Only move monies by direct trustee to trustee transfer if you want them to stay in that type of account (or be sure whatever is done to move the monies preserves the characteristics of the account)
3) Do Not mix any monies into the account from other sources

At least for IRAs, there are also things that can be done by omission that will automatically change the account from e.g. a beneficiary account to your own account. I'm not sure that any of them apply in the OPs case, but that's why it's best to read all the rules. E.g. if required RMDs are not taken on time, the beneficiary account will automatically be considered by the IRS to have lost the beneficiary account status. Or as mentioned above, if you make contributions (or rollovers of other money) to the beneficiary account, it automatically is deemed your account.
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