Owner only 401k plan with no designation of beneficiary

1 person owner only plan.  The 1st RMD was distributed in 2024.  The Owner died in September 2025 and did not have a named beneficiary in the plan.  He was never married and did not have children, therefore, his death benefit will be payable to his Estate.  The Attorney and Financial Advisor want the funds distributed to his "Estate Beneficiary IRA account" as his IRA funds will be transferred here as well. The funds would then be distributed to the beneficiaries of his Estate to an inherited IRA.  I have never heard of this.

Wouldn't the funds have to be distributed to his Estate subject to income tax?

I am assuming that the plan document provides that in the event the participant dies without a designated beneficiary and is not married, the designated beneficiary is the estate. The estate is not an individual or an eligible rollover recipient. So, this is not an inherited IRA situation. Amounts cannot be distributed to an IRA account. They must be distributed to his estate. The RMD rules apply. Specifically, the "at least as rapidly" rule would apply in this case. Amounts received by the estate are taxable to the estate (or beneficiaries, if passed through).

4 hours ago, DDB BN said:

The Attorney and Financial Advisor want ... 

The Plan Administrator does NOT take orders from the attorney or financial advisor for the participant or beneficiary or estate.  The PA is charged with following the terms of the written plan document.  I hope that is obvious.

I assume that an "order of precedence" (that might be found in the plan documents or in the governing statute or regulations) doesn't stop with spouse and children but keeps going to parents, brothers and sisters, nieces and nephews, next of kin who is entitled to the estate under the laws of the state, and Kevin Bacon. 

This is the definition in the document:

In the absence of any other designation, the Participant will be deemed to have designated the following Beneficiaries in the following order: (1) the Participant's
Spouse, if then living; (2) the Participant's issue, per stirpes; (3) the Participant’s estate. No Beneficiary named hereunder will have any rights granted to Beneficiaries under the terms of the Plan until the death of the Participant.

Thank you for this information. My comment still stands, which is that the estate is the designated beneficiary, and amounts from the plan can only be distributed to the estate, not an IRA. The estate can elect to take the whole account balance or receive the RMDs over time pursuant to the RMD rules that apply. In either case, amounts distributed are taxable income to the estate (or if applicable to the beneficiary).