Ask Terry Questions 401K inherited, now what?

401K inherited, now what?

By Terry Savage on May 18, 2019 |

Just read your column on inherited IRA’s. i inh erited a 401K from my wife when she passed in 2012. I been told that if I move the 401 all taxes may come do by IRS. Your thoughts on this. I am 77 years old and have been taking RMD’s .

Terry Says

If you inherited the 40l(k) it should have been rolled into a spousal IRA at the time.  Most companies require that you do this, although some allow you to stick with the inherited 40l(k) account.   You should still be able to do a DIRECT ROLLOVER to either an inherited IRA or a spousal IRA at another company (perhaps Vanguard or Fidelity) BUT you must first take the RMD for that calendar year, before you can do the rollover.  It will likely require a copy of the death certificate — unless the 40l(k) account has already been re-titled as an inherited account.

Be careful NOT TO TAKE A CHECK, but instead allow the new custodian (Vanguard or Fidelity) to handle the transfer as a DIRECT ROLLOVER.   They will advise you of the RMD amounts required in the future. And be sure to name a beneficiary for the newly created IRA.

Here’s a link to a complete explanation of the rules.

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