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My mother passed away several years ago and my sister and I inherited her POD 401(k) account. It was a 50%/50% split into two beneficiary accounts. Last year (2016) I was informed by the bank that the account would now be withdrawn because it was the year where she would have turned 62, the age where her company requires employees withdraw their retirement accounts (this was fairly foggy to me as explained by the Fidelity Investments employee, it may be specific to beneficiary 401(k) accounts? Why would a company force their employees to withdraw from their retirement accounts?)

I was not aware of this rule and did not have the proper time to correctly rollover this beneficiary account into one of my own retirement accounts. So now I have a check coming that will throw me into a higher tax bracket for 2016. Is there any way I can still avoid being taxed on this by taking the money and depositing it directly into one of my own 401(k) accounts or an IRA?

UPDATE: I spoke to a Fidelity investments employee and they said because of the timing (withdrawal stuff being put into motion at the end of 2016) they can only issue me the check as if it were a normal withdrawal. So I need to speak to a tax planner to determine if I can still take the check and perform a trustee-to-trustee rollover into an IRA (although I doubt I can per this line in Nathan L's link "So if Uncle Henry's 401(k) plan issues a check payable to you personally, you can't do an IRA rollover"). As based on the responses that seems like the only option when it comes to beneficiary 401(k)'s. That or just take the tax hit.

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Things are more complicated for non-spouse beneficiaries of a 401(k) account. If you have not deposited the money yet, you may wish to contact the plan administrator and have them do a trustee-to-trustee transfer. If you take possession of the money (by depositing that check) then it will be considered a distribution and won't be eligible for a roll-over deposit.

Required minimum distributions will still apply, but those are based on when your mother would have reached the age 70.5, rather than 62. It's not clear to me why they chose that number unless it was something specific to the rules of her 401(k) plan.

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  • The link you provided specifies that a trustee-to-trustee transfer can be completed into an inherited IRA or Roth IRA account. What if I did not inherit an IRA or Roth IRA?
    – C. Zach Martin
    Mar 20, 2017 at 20:19
  • The rollover will be done to an account in your mother's name, but it's still in your control. I updated the link to an easier read.
    – NL - Apologize to Monica
    Mar 20, 2017 at 20:25

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