Can 401k beneficiary roll over inherited funds?

MrCreosote · February 2004

An employee's mother passed away and he was a 25%beneficiary for her 401(k). Can he roll that money over into his own 401(k)? Can he avoid paying taxes on it by doing so?

JM in ATL · February 2004

To the best of my knowledge, no. He will not be able to rollover the funds into a 401K. The funds in the 401K were not contributions made by him, therefore he does not have the ability to roll them into a 401K account in his name.

He can open an individual IRA with the distribution or any other ivestment option, but he will not be able to join another 401K plan of another persons with his.

Don D · February 2004

Unless he is 50 and then he can put 2000 of it tax free in his 401k.

AJ SPHR · February 2004

Look to your plan document. Our plan allows rollovers from other qualified plans into our 401(k) plan. This is spelled out in our plan document. If you can't find that info, contact your plan administrator.

Don D · February 2004

Money can olny be rolled from plan to plan by the owner/investor, not the beneficiary of an inheritance. If there are tax consequences to the inheritance, a 401k loophole would not allow the beneficiary to escape those consequences.

AJ SPHR · February 2004

Don, I understand what you're saying, but the original poster stated that he was a beneficiary under another 401(k) plan, so couldn't that 401(k) provider process a rollover without tax consequences and preserving the tax qualified status of the money if the original poster's plan allows for rollovers?

Scott Ruth · February 2004

Legally, the only beneficiary that could be allowed to roll over a distribution upon the death of a 401(k) plan participant is the participant's spouse, so in this case the answer is "no." As some of the other replies have suggested, there may be ways this beneficiary can offset the income he will receive as a result of this distribution, such as making a tax deductible contribution to an IRA (if eligible) or increasing salary reductions into his 401(k).

A good place to find answers to questions like these is in the "Special Tax Notice Regarding Plan Payments" that every plan is required to provide to participants with distribution election forms. Your plan administrator should have a copy. This participant may also want to consult with a professional tax advisor.

Scott Ruth
Miller & Martin LLP

Can 401k beneficiary roll over inherited funds?

Comments