29Oct2015
I inherited a work place retirement plan. Now What?
by Keythe Ward-Aguilar, CFP® in Best Practices, Ideas, Hints, Tips

What are my options when I inherit a family member’s work place retirement plan?

You have several options to consider when you have inherited a family member’s 401(k), 403(b), or other retirement plan. The options available depend on the plan’s rules, so they should be discussed with the plan administrator for specifics.

Many plans allow you to make a direct rollover (trustee-to-trustee) transfer to a new IRA (individual retirement account) in your name as a beneficiary of the original member of the plan. From there you may take annual distributions based on your life expectancy, or if you are older than the individual you are inheriting the assets from, his or her life expectancy is used for the calculation. Or, the plan may allow you to simply take a lump sum distribution and cash out the account. Some plans may allow you to receive distributions over time in the form of an annuity. If you inherited the assets from your spouse, you may be able to postpone required minimum distributions until you turn 70 ½.

Tax implications should be considered with any decision regarding the various options. Withdrawals of pre-tax dollars are, in general, taxed as ordinary income whether taken as a lump sum or as a series of lifetime payments.

Managing inherited retirement assets can be complex. Timing of required minimum distributions needs to be tracked carefully. There is a difference between inheriting assets from a family member or a spouse. If mistakes are made there is a potential of substantial fees and penalties from the IRS. That is why we encourage you to consult a financial advisor for guidance and your tax person to cover the tax implications.

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