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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2366
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Non spousal beneficiary for 401K left to me by my Son. I am

Customer Question

Non spousal beneficiary for 401K left to me by my Son. I am 70 years old and called Fidelity to roll the funds into a IRA so I could start my allotments when I turned 70 1/2.
I was told I no longer had that option and I would be getting a check for the full amount at the end of the year. That there is a 5 year rule for Non-spousal accounts.

I asked if I could change the title of the 401k to a inherited 401K move the money now before the end of the year. I was told that I could not do that.

I explained that I had never received any information about non-spousal 401K's rules from Fidelity or my Son's employer.

Is this a IRS rule

Do I need a lawyer
Babs
Submitted: 3 years ago.
Category: Tax
Expert:  Anne replied 3 years ago.

Anne :

Hi

Anne :

Thank you for using justanswer

Anne :

I am truly sorry about your son

Anne :

Unfortunately, the IRS is correct

Anne :

since this is a non-spousal inheritance of pre tax dollars, it does need to be totally withdrawn by the 5th year

Anne :

Let me get this in writing for you

Anne :

"The 401k plan may require you to take all of the money out of the plan no later than Dec 31 of the fifth year following the year of the person’s death. You could take a little out each year, or wait until the last year to take it all. You will pay regular income taxes on the amount withdrawn, so you may want to take more out in years where you expect to be in a lower tax rate."

Anne :

The quote above came from this website:

Anne :

http://moneyover55.about.com/od/RetirementAccountWithdrawals/a/401k-Beneficiary-Inherited-401k-When-And-How-You-Can-Take-Money-Out.htm

Anne :

 


understand that you may be disappointed by the Answer you received, as it may not necessarily be favorable to your situation. Had I been able to provide an Answer which might have given you a successful legal outcome, it would have been my pleasure to do so.


Anne :

Please let me know if you have any further questions

Customer: replied 3 years ago.

I don't feel I got any information that I didn't already have. I am still working on this problem, I have now been advised to seek help with IRS to review my case since I was not advised on the 5 year rule.


Barbara

Expert:  Anne replied 3 years ago.

Barbara

It is my goal to always strive to provide excellent service to each and every customer, and I am truly sorry that you felt that my service was lacking

You asked if the 5 year rule for non spousal IRA was an IRS rule, and I gave you the IRS link verifying that information.

I admit that I was surprised that the people that you spoke with at Fidelity were not aware of this 5 year rule, since it is right on their website:


https://www.fidelity.com/viewpoints/non-spouse-IRA


Which includes this paragraph


"If the original IRA owner died before reaching age 70½ (before MRDs would be required) you also have the option to distribute your inherited IRA under the five-year rule. This allows you to take distributions however you like without penalty, as long as all assets are completely distributed from your inherited IRA by December 31 of the fifth year following the IRA owner’s death.

It would be helpful if you had the names/dates/times of the people you spoke with originally at Fideity. The ones that recommended you get an attorney.

Barbara, I am so sorry that you have to deal with this while still grieving for your son.