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Surviving spouse - what to do with inherited 401ks?

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  • Surviving spouse - what to do with inherited 401ks?

    If someone unexpectedly dies and still has money in several prior 401ks, can their spouse assume those 401ks? If not, is it important the rollover to the spouses 401k / IRA occurs within a certain time frame (ie same tax year, etc) and what kind of penalties are there if this is not executed in a timely manner?

  • #2
    the person who knows the 401ks before death needs to make sure to fill out beneficiary forms. Every plan has them. Every one I have seen has a primary beneficiary line and then a secondary/contingent beneficiary line.
    Last edited by JBME; 11-12-2021, 04:23 PM.

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    • #3
      ten years even for a spouse?
      “. . . And the LORD spake, saying “First shalt thou take out the Holy 401k. Then shalt thou save to 20%, no more, no less. 20% shall be the number thou shalt save, and the number of the saving shall be 20%. 25% shalt thou not save, neither save thou 15%, excepting that thou then proceed to 20%. 30% is right out . . .””

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      • #4
        spouses are exempt I thought. At least that's true for IRAs (including roths), so I presume for 401k also. Calling on @jfox and spiritrider!

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        • #5
          Originally posted by blippi View Post
          ten years even for a spouse?
          No.
          "If you inherit an IRA or 401(k) from your spouse, nothing much changes. You can still generally stretch out required minimum distributions (RMDs) your distributions over your lifetime. Also able to stretch distributions are 4 types of eligible designated beneficiaries (EDBs):"

          Other beneficiaries were handled differently.

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          • #6
            Oops I missed the spouse part. Yes secure doesn’t pertain to spouse

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            • #7
              Spouses are exempt from the 10-yr distribution rule on IRAs (there are others who are exempt, too, but we’re talking about spouses (spice?). A retirement plan owner is typically required to list his/her spouse as the primary beneficiary unless the spouse signs a form waiving that right (imagine that convo). The spouse can also roll the funds into his/her own IRA and treat the r/o as their own. Other exceptions apply, but I think these address all of the comments/questions above.
              Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                Can the spouse leave the money in the original 401k and manage it there?

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                • #9
                  Originally posted by CFEonline View Post
                  Can the spouse leave the money in the original 401k and manage it there?
                  Sure, but said spouse loses a lot of flexibility. No contributions to it allowed, no rollovers into or out of the account - you get the picture, I hope. Far preferable to treat it as your own account.
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    Got it, but it is not wrong to simply leave it in the deceased person's old 401k at least for a while, and not going to run afoul of some penalty or forced distribution if it is not rolled over to the spouse's IRA by the end of the year?

                    Could they keep the original 401k indefinitely if there was a unique access to a particular fund they liked, for example?

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                    • #11
                      Originally posted by CFEonline View Post
                      Got it, but it is not wrong to simply leave it in the deceased person's old 401k at least for a while, and not going to run afoul of some penalty or forced distribution if it is not rolled over to the spouse's IRA by the end of the year?

                      Could they keep the original 401k indefinitely if there was a unique access to a particular fund they liked, for example?
                      I dont think theres a penalty for leaving it in, but if its just for a particular fund, you can choose your own fund in your inherited IRA/traditional IRA. Inherited IRAs will follow your spouse's RMD schedule I believe. They are also treated as your own so may screw up the Backdoor Roth options (admittedly I haven't looked this last part up, I'm just going with the IRA will be a traditional one and if treated as your own, you'd have to convert that too).

                      The simplest would be rolling it over into your own 401k. This is what I plan on doing with my wife's when the inevitable happens. If there is really a fund you like in your spouses 401k and not yours, just buy it in your roth/IRA space to keep the allocation the same. Also, plans change funds all the time. If you left it in your spouse's 401k and then that plan changes the fund, you'd be SOOL.

                      https://www.fool.com/retirement/plans/401k/inherited/

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                      • #12
                        Originally posted by CFEonline View Post
                        Got it, but it is not wrong to simply leave it in the deceased person's old 401k at least for a while, and not going to run afoul of some penalty or forced distribution if it is not rolled over to the spouse's IRA by the end of the year?

                        Could they keep the original 401k indefinitely if there was a unique access to a particular fund they liked, for example?
                        There are advantages and disadvantages both ways, depending upon the age of spouse at death and your age. For example, if your spouse was age 72+, you’ll have to take RMDs; if you are younger, you can draw that out by r/o into your own account. If you are below age 59.5 and want to take penalty-free dist’s, you may want to leave it intact in the deceased spouse’s account, as you would owe penalties on dist’s if r/o into your own account.

                        I wouldn’t include unique access to a particular favorite fund to be even close to the top 10 reasons impacting my decision, but I think you pulled that out of space for example only.

                        You can usually find solid answers on Investopedia for basic info like this.
                        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                        • #13
                          When you have RMD's , you have to do them account by account. No netting of over/under in total. At that point, you are smart to consolidate them and avoid inadvertent penalties.

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                          • #14
                            Besides age difference; leaving in old account is another way to separate if remarried and keeping away from the step-children hands,right?

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                            • #15
                              Originally posted by StarTrekDoc View Post
                              Besides age difference; leaving in old account is another way to separate if remarried and keeping away from the step-children hands,right?
                              I suppose so, but that’s certainly something I would take care of before remarriage. I’m not a huge fan of prenups for 1st marriages, but certainly a fan in 2nd marriages with stepchildren. That is an excellent time to both have a prenup drawn up and to get each spouse’s estate plan in order.
                              Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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