Distribution of deceased participant's account to surviving spouse's account in same plan; can survivor later roll over to IRA?

[Lori H]

A husband and wife were participants in a 401(k) plan. The husband is now deceased. Can the wife, as beneficiary, roll his account into her account in the plan? Or, if she decides to roll the proceeds to an IRA can she roll it into an IRA which is already in existence? I see where a similar question was posted on the message board in 1999 but I didn't see any responses. So, I apologize, in advance, if this question has been asked and answered under another topic. Thank you for your responses.

[Theresa Lynn]

Unfortunately, the spousal rollover rules apply only to IRAs and not to qualified plan distributions.

[mbozek]

Under IRC 402©(9) the surviving spouse can roll over the distribution to her own account in the qualified plan or to an IRA. However, why roll it over if she doesnt have to? If the deceased spouse's account can be continued in the qualified plan, a surviving spouse under 59 1/2 can make withdrawals from the account without paying the 10% penalty because the distributions are on account of the death of the participant.

[Guest Steve Palmer]

If the surviving spouse does not elect to make it her own by the end of the year following death and leaves it in the qualified plan for a few years can she still rollover to an IRA and make it her own after a few years and receipt of RMDs?

In this case, the deceased spouse had not reached his RBD at death, but would have the next year and the surviving spouse is > 59 1/2 and < 70 1/2 for all years. The reason for leaving in the qualified plan for an indefinite time is for creditor protection.

Thank you.

[Harwood]

Unfortunately, the spousal rollover rules apply only to IRAs and not to qualified plan distributions.

It was a provision of EGTRRA, effective January 1, 2002, that now allows surviving spouses to rollover to plans, not just IRAs.

[Mary Kay Foss]

The spouse's options are to (1) roll it to an IRA (either new or existing) in her name, (2) roll it to her account in the same plan or (3) leave it in the name of the deceased spouse.

The advantage of the third choice is that withdrawals are then available without a 10% penalty.

There is no time limit for doing a rollover, except that the survivor's executor cannot complete it. The usual recommendation with a survivor under age 59.5 is to defer the rollover until that age is attained.

If it's rolled to her account in the employer plan, access may be a problem. You need a distributable event to withdraw funds from an employer plan. There's no such requirement with an IRA. The plan may have some restrictions on how long a beneficiary can maintain funds within that qualified plan, but most plans are much more flexible when the surviving spouse is the beneficiary.