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RMD Issue -- Spouse inherits SIMPLE IRA/Wants to Rollover to 401(k) Plan


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401(k) plan participant dies.  Spouse is sole primary beneficiary.  Based on advisor's recommendation, spouse -- pursuant to SECURE 2.0 -- elects to treat 401(k) account balance as if she was the employee.

Participant also had a SIMPLE IRA.  Spouse is sole primary beneficiary of the SIMPLE IRA.

With spouses having full rollover rights (402(c)(9)), is there any issue with spouse rolling over the SIMPLE IRA death benefits to the 401(k) plan and having the recipient 401(k) plan treat such rollover as if she was the employee for purposes of paying RMDs to the spouse?  Any help would be appreciated.  Thanks.

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If the SIMPLE is 2 years old I believe she could elect to roll it to her 401(k) Plan account (assuming she is a participant and entitled to roll in to the Plan) but I don't think she can elect to roll it to his 401(k) account if that is what you are asking.

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Lou S.

Thanks.  I appreciate the feedback.  That is exactly what I'm asking.  Spouse is not a participant in the recipient 401(k) plan.  She inherited husband/participant's 401(k) account and is treating that inherited account as if she was the employee/participant for RMD purposes.

I understand your thoughts to be that spouse can rollover the inherited SIMPLE into her own IRA or into an inherited IRA but not into the husband/participant's 401(k) plan (where she has an inherited account but is being treated as the employee/participant for RMD purposes).

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Just watch the 2-year holding period rule for SIMPLE IRA rollovers/withdrawals. I'm not sure if the 2-year holding period would be waived if that individual passes. 

The question for you would be why would the surviving spouse not want to roll the money out into her name? 

 

Something she needs to consider is access to the money. If she is pre-59-1/2 and rolls that money into her own IRA account, she will pay penalties and taxes for any withdrawals. If she rolls it into an inherited IRA she can take withdrawals pre-59-1/2 without paying a 10% penalty. AND even if she elected to receive the money into an inherited IRA it's not an irrevocable decision. On a later date, she can roll those assets into her own IRA. 

 

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Bruce1:

I appreciate the cautionary notes.  The two-year holding period is not an issue.  We are responsible for the 401(k) plan and have no connection with the SIMPLE.  That said, in telling the spouse she cannot roll the inherited SIMPLE into the 401(k), we will strongly recommend that she confirm with her financial advisor what the best move would be with respect to the SIMPLE.

Thanks.

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Something to consider - for the 401(k) plan is she treated as a terminated participant? or rather something other than an active employee participant for purposes of the 401(k) plan?

Her husband's account is hers yes, but some plans do not allow terminated participants to roll money into the plan. Does the plan allow other terminated participants to roll money into it?

Assuming she would be allowed to do a rollover in - 

some additional suggestions - the 401(k) account should be renamed/recoded (even if only on paper) to her as the participant - similar to how an Alternate Payee's account is set-up/segregated pursuant to a QDRO. The inherited SIMPLE IRA - she rolls to a regular IRA of her own first, then rolls that IRA into her 401(k) account in the plan. 
But all that work is pointless if she can't do a rollover into the plan. Just my 2¢.

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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