QDRO Deceased Alternate Payee

[PFranckowiak]

QDRO - Alternate Payee died before receiving payment from a 401(k) QDRO

QDRO - states that if alternate payee dies - it is to be paid to the alternate payees estate. 

Mother of the Alternate Payee I guess has control of the Estate per the court.

Alternate payee has a 4 year old child.

If paid to the Alternate Payees Estate - does that mean that their are no rollover options and we have to withhold taxes?

[ESOP Guy]

My understanding has always been "yes" and "yes".  No rollover and you have to withhold taxes since it is the estate being paid.

In fact depending on the size of the estate and state law it very well could mean they are supposed to have the estate apply for an EIN as that is what you are supposed to put on the 1099-R and the estate pays the income taxes.   That can be a real problem/pain for small amounts.  

[david rigby]

It's my understanding (look for prior discussion threads on this point):

• Because the estate is not a natural person, the estate cannot establish an IRA and the estate is not a participant in another tax-qualified plan; therefore, the estate does not have an option to elect a direct rollover.  Since the 20% withholding applies only to “rollable” distributions, this default withholding does not apply to any payment to an estate.  
• Accordingly, the “other default” withholding will apply: 10%.  However, the estate has the right to elect zero withholding, and can use W-4P for this purpose.  The estate’s right to make this election is specifically mentioned near the top of the first column on page 2 of the W-4P instructions.   https://www.irs.gov/pub/irs-pdf/fw4p.pdf

QDRO is not related to this question.

[PFranckowiak]

Thank you

[Luke Bailey]

PFranckOwiak, especially if the amount is large, I would tell the administrator/executor your preliminary conclusion per the above and give them a little time to either accept it, or push back. If, for example, the child is the sole (i.e., 100%) beneficiary of the estate, there might be a way to concluded that the child was really the distribute. There are some private letter rulings in this area that should be reviewed. Also, if the child is not the sole beneficiary, others might be willing to disclaim their interest. It could be complicated.

[PFranckowiak]

Attorney wants to pay out to the estate - not a very large amount.

Roth involved - Roth clock started in 2009.

Participant under 59.5

Alternate Payee died under 59.5, Beneficiary according to QDRO is the Estate.

So is there withholding on the Roth Earnings?

[david rigby]

On 5/22/2019 at 1:26 PM, PFranckowiak said:

Attorney wants to pay out to the estate - not a very large amount.

Whose attorney?  The plan should take (or, at least listen to) advice from its own attorney.  The attorney for the beneficiary and/or the estate does not get a vote.