Technical topics regarding tax preparation.
25-Mar-2023 5:51pm
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Client's now-deceased grandmother had her living trust as the beneficiary of her 401k. Client is now trustee. Can the trust roll this into inherited IRA's for the beneficiaries or are they stuck having to distribute money to the trust and then to the beneficiaries?
25-Mar-2023 7:55pm
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Read Pub 590-B, page 14.
If grandmother died in 2022, deadline to get things set up correctly is October 31, 2023.
26-Mar-2023 7:23am
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The trust can distribute.
Steve
27-Mar-2023 4:26pm
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When a trust is the beneficiary of a 401K (or IRA), the trustee can assign the income interest in the plan assets to the trust beneficiaries and terminate the trust, rather than keep the trust open for a number of years for the sole purpose of collecting and distributing RMDs. Same for an estate. Reg 1.691-4(b)(3). Some plan administrators and IRA custodians will not cooperate with the request for assignment to beneficiaries.
28-Mar-2023 6:51am
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Don't you mean the entire IRA rather than just the income interest in the plan assets?
Steve
28-Mar-2023 8:15am
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gatortaxguy wrote:Don't you mean the entire IRA rather than just the income interest in the plan assets?
Reg. 1.691-4 is titled: "Transfer of right to income in respect of a decedent". But essentially yes - it would be a transfer of the inherited IRA account.
28-Mar-2023 10:10am
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marknyc wrote:gatortaxguy wrote:Don't you mean the entire IRA rather than just the income interest in the plan assets?
Reg. 1.691-4 is titled: "Transfer of right to income in respect of a decedent". But essentially yes - it would be a transfer of the inherited IRA account.
But this is 401K, not IRA. I have found most admins will not allow a 401K with trust or estate as bene to be rolled to an IRA for the trust beneficiaries.
28-Mar-2023 11:19am
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Yellowdog wrote:marknyc wrote:gatortaxguy wrote:Don't you mean the entire IRA rather than just the income interest in the plan assets?
Reg. 1.691-4 is titled: "Transfer of right to income in respect of a decedent". But essentially yes - it would be a transfer of the inherited IRA account.
But this is 401K, not IRA. I have found most admins will not allow a 401K with trust or estate as bene to be rolled to an IRA for the trust beneficiaries.
I agree, as I stated above in post #4.
28-Mar-2023 11:51am
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What can be done by the 401k custodian is defined by the 401k plan document. Many 401k plan documents are not friendly for non-spouse beneficiaries. For example the plan document may state any named beneficiaries other than the spouse - only option is for a lump sum distribution within so many days after death.
If the plan document provides a rollover option for a beneficiary that is not an individual, then rollover to a friendly IRA custodian that does not require a PLR or court order to assign the trust/estate rollover IRA to the trust beneficiaries. It is painful to find a friendly custodian but they exist. PM me if you need a firm name. In most cases they will require estate documents and a statement that the trustee indemnify and hold harmless with Medallion Signature Guarantee.
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