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John Elder
John Elder, Estate & Elder Law
Category: Estate Law
Satisfied Customers: 4631
Experience:  Over 14 years experience in Medicaid, Estates, Trust.
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If the beneficiary of a 401k is the estate, can you roll over

Resolved Question:

If the beneficiary of a 401k is the estate, can you roll over the proceeds of the 401k to an inherited IRA, considering that there is only one beneficiary of the estate named in the will?
Submitted: 1 year ago.
Category: Estate Law
Expert:  John Elder replied 1 year ago.
Welcome! Thank you for your question.

Unfortunately the 401k benefits are payable to the estate, therefore they will be subject to the "five-year rule," meaning that all benefits must be distributed out of the 401k within five years after the decedent's death.

An estate is not a "designated beneficiary" so the life expectancy payout option is not available for benefits payable to an estate. The employer may not under stand it but the estate can transfer the inherited 401k to an inherited IRA for you, but that will not extend the payout period beyond five years. The IRS has ruled that an estate cannot "disclaim" retirement benefits payable to it.

I cannot provide you with legal advise. I have provided you with information about the law related to your question. My answer, and any information that you find online, should not take the place of having a consultation with a lawyer in your area to advise you regarding your specific issues.

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Thank you,

John

Customer: replied 1 year ago.
Thanks John. I am aware of the 5 year payout requirement. What I am concerned about is the ability to pay out the tax liability over 5 years as well or will taxes have to be paid in a lump sum the year if the distribution. In other words, the distribution is taken in 2013, the distribution is reinvested by the estate into an inherited IRA on behalf of the beneficiary of the estate, will 100% or 20% of taxes be due in 2013? Thanks.
Expert:  John Elder replied 1 year ago.
Only 20% of the IRA will be deemed distributed. This is whether you take the distribution or not. You pay income tax on that 20% deemed distributed each year.
John Elder, Estate & Elder Law
Category: Estate Law
Satisfied Customers: 4631
Experience: Over 14 years experience in Medicaid, Estates, Trust.
John Elder and 2 other Estate Law Specialists are ready to help you

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