Death Benefit Received By Spouse When Both Spouses Have an Account Balance in Same Qualified Employer 401K Plan

We have a client, call him John who has a 401K Plan and the Plan allows rollovers into the Plan.   Both a Husband and Wife are employees of John who sponsors the plan and both the Husband and Wife participant in John's plan; to say it another way, both husband and wife have separate participant account balances in the John's plan.  The wife recently died and her surviving spouse wants to receive  a distribution of his Deceased Wife's account in John's plan as a subaccount under his account in John's plan.   Is this type of distribution allowed and considered an eligible rollover distribution under Code Section 402(c)(2) and (4)?

Thank you,

Dawn

Yes, but make sure your plan document allows for in-kind distributions so that nothing has to be sold to cash/re-purchased. 

And keep an eye out for any RMD concerns, as well!

According to the February 2022 proposed rollover regulations (issued in connection with the proposed RMD regs), rollovers to qualified plans must be in capacity of employee. If a surviving spouse rolls over a distribution to a qualified plan, then that amount is treated as the spouse’s own interest under the receiving plan and not the interest of the decedent under the distributing plan. Thus, for example, in determining the required minimum distribution from the receiving plan with respect to the amount rolled over, distributions must satisfy section 401(a)(9)(A) and not section 401(a)(9)(B). (This would mean the required beginning date and uniform lifetime table factor would be determined based on the surviving spouse's age after the year of the rollover). 

If the participant wished to simply leave his surviving spouse beneficiary account in the plan, he could do so if the plan permits. In that case, RMDs timing would be determined based on the age/date of death of the deceased spouse. The RMD amount for the spousal beneficiary account would have to be determined using single life factors for spousal beneficiaries under the RMD rules applicable to his or her situation - death before or after required beginning date.