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I’m 74 years old (I used to be born Feb 2, 1948). My wife and I each worked for Aetna, but have retired and have 401(k)s from work which might be with Vanguard. I received her 401(k) as a spousal inheritance and maintain it in a separate account. I plan to take RMDs on her account but I’m unsure if I actually have the choice to take the RMDs based upon her age or my age. She had not begun taking RMDs on her account because she was not 72. Are you able to confirm which age (hers or mine) I should use for the primary RMD withdrawal, and by what date does that RMD should be taken? I think there’s a provision within the law that indicates that with spousal inheritance you don’t need to begin taking RMDs from an inherited account for a 12 months after the 12 months of death.
– Gary
The date and amount of that first required minimum distribution (RMD) rely on what you choose to do with the inherited 401(k). The reply will vary based on whether you roll the funds into your personal 401(k) or IRA; transfer the account to an inherited IRA and take RMDs from it; transfer the cash into an inherited IRA and follow what’s called the 10-year rule; or do a Roth conversion. Here’s a better have a look at those options and what they mean for RMDs. (And should you need more help planning for RMDs or taxes in retirement, speak with a financial advisor.)
As a surviving spouse, you will have the choice of rolling the inherited 401(k) into your personal 401(k) or IRA. You would roll it into an existing account open open a recent IRA to receive the rollover.
When you go this route, the cash will probably be treated as yours and change into subject to the identical RMD requirements as should you had held it in your account all along. Since you’re 74 and not working, you would want to take an RMD by Dec. 31 and the quantity can be calculated using your age and the Uniform Lifetime Table. (But should you need more help calculating your RMDs, consider matching with a financial advisor.)
Transferring money to an inherited IRA is one method to manage an inherited 401(k).
As a substitute of rolling it into your personal IRA, you would as a substitute transfer it into an inherited IRA. This has the advantage of allowing you to delay RMDs until the later of two deadlines:
In your case, it seems like this is able to will let you wait a few years before taking RMDs. So long as you are taking your first RMD by Dec. 31 of the 12 months your wife would have turned 73, you need to avoid penalties.
At that time, nonetheless, RMDs would still be calculated based in your age. You wouldn’t give you the chance to make use of your wife’s age to scale back the RMD amount. (A financial advisor may give you the chance to enable you manage inherited retirement accounts and other assets.)
Since RMDs had not already began, you would select to not take RMDs in any respect so long as your entire account is distributed by Dec. 31 of the tenth 12 months after your wife’s passing.
This may prevent the trouble of calculating RMDs during those first nine years, and it might prevent taxes in those years as well. Nonetheless, it could lead on to a much greater tax bill in that tenth 12 months, and your entire balance would need to be distributed much sooner than should you were taking RMDs in response to the Uniform Lifetime Table. (And should you need assistance finding a financial advisor to guide you thru this process, this tool can pair you with up to a few advisors who serve your area.)
A person considers rolling an inherited 401(k) into his IRA after which completing a Roth conversion.
Another choice can be to convert some or all the inherited 401(k) balance to a Roth IRA. This may eliminate the necessity for RMDs for the quantity that’s converted since Roth IRAs aren’t subject to RMDs.
It could, nonetheless, subject the conversion amount to taxes during that 12 months. That may benefit you should you’re prone to be in the next tax bracket later in retirement. Otherwise, it might not be price the associated fee.
You’ll likely be best off with either the primary or second option since they each will let you spread those distributions out over your lifetime. The first difference is when those RMDs need to begin. When you transfer the assets into your personal account, they will probably be a part of your RMD calculation for this 12 months. When you keep the assets in an inherited IRA, you possibly can wait until the 12 months wherein your spouse would have turned 73 before taking RMDs. The required distribution amounts will still be based in your age, but those extra tax-deferred years may very well be useful.
Finding a financial advisor doesn’t need to be hard. SmartAsset’s free tool matches you with up to a few vetted financial advisors who serve your area, and you possibly can have a free introductory call together with your advisor matches to come to a decision which one you’re feeling is correct for you. When you’re ready to search out an advisor who can enable you achieve your financial goals, start now.
Consider a number of advisors before selecting one. It’s vital to be certain you discover someone you trust to administer your money. As you concentrate on your options, these are the questions you need to ask an advisor to make sure you make the proper selection.
Keep an emergency fund readily available in case you run into unexpected expenses. An emergency fund ought to be liquid — in an account that may not liable to significant fluctuation just like the stock market. The tradeoff is that the worth of liquid money might be eroded by inflation. But a high-interest account permits you to earn compound interest. Compare savings accounts from these banks.
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Matt Becker, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got an issue you’d like answered? Email AskAnAdvisor@smartasset.com and your query could also be answered in a future column.
Please note that Matt just isn’t a participant within the SmartAsset AMP platform, neither is he an worker of SmartAsset, and he has been compensated for this text.
