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I have a friend who wants to roll-over their 401(k) after recently leaving their employer to an IRA or 529 plan for her grandkids (in their name, or their parents' name) instead of into an IRA in her own name.

First, is this possible?

Second, how can she do it?

Third, are there any gotchas she needs to pay attention to (penalty fees, etc)?

  • Why do they want to do this? If they want to contribute to those people's accounts, it would be much better to do so with after tax money than an existing plan. – Glen Pierce Oct 30 '18 at 19:47
  • @GlenPierce - I don't know all the details, I just know that they'd rather put the money in someone else's name when they close it out. – warren Oct 30 '18 at 19:49
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As far as I know (and I have looked into this due to my own IRA woes) the only ways to transfer ownership of a 401(k) are:

  1. cash it out and pay any applicable tax and penalties;
  2. to the named beneficiary by dying; or
  3. to ones spouse as part of a divorce settlement.
  • 2
    Or to cash out and pay the tax (maybe that option is implicitly obvious...) – D Stanley Oct 30 '18 at 19:57
  • I was afraid this would be the case. – warren Nov 1 '18 at 20:07
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The person who wants to do this needs to sit down with a financial planner who can help with planning related to inheritances.

They need to discuss with this planner what their goals are, what their current and future financial situation is, and come up with a way to achieve those goals.

Moving money from the 401K into either a IRA, or taxable account can impact their taxes and can limit their options regarding transferring the funds to the next generation. It can even cause problems for them in the next few years if they need that money for medical expenses.

Unless they are under a deadline to move the funds from the 401K, they should take the time to sit down with a planner and do this right.

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