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Posted: 12/7/2013 1:43:17 AM EST
Figured this was the best section in which to post.
Granted it may be an unusual topic but one that one realistically needs to think about.

When one person dies passes away is the spouse able to cash it out or must they wait until retirement age?
What happens if only the children are left? Are they able to cash it out or must they also wait to retirement age?

If either is able to cash out are they getting heavily taxed or do they get a break?
Link Posted: 12/7/2013 4:00:07 AM EST
Maybe this will help? 401(k) help
Link Posted: 12/7/2013 4:35:03 AM EST
Originally Posted By JThompson:
Figured this was the best section in which to post.
Granted it may be an unusual topic but one that one realistically needs to think about.

When one person dies passes away is the spouse able to cash it out or must they wait until retirement age?
What happens if only the children are left? Are they able to cash it out or must they also wait to retirement age?

If either is able to cash out are they getting heavily taxed or do they get a break?
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I don't know about your spouse but I can speak for your children. Having gone through this (Grandmother), I can give you limited advice that you should double check with a pro.

If I recall correctly, the 401k can be rolled over to an Inherited IRA. You may cash out of the inherited IRA without penalties but that would be an extremely foolish thing to do since you can stretch an inherited IRA over the rest of your life by only taking RMDs (Required Minimum Distributions). Why give up the tax benefit of the inherited IRA any sooner than you have to? The government would LOVE IT if you cashed it out. They've been salivating at the thought of closing the "Stretch IRA" loophole for years.

Yes, you will be taxed on any distributions you take from an Inherited IRA or 401k just like you would had it been your IRA or 401k and you reached retirement age. Once again, this advice is only based on children who inherit a 401k/IRA. The rules are likely different for a spouse but I doubt she would have the ability to cash out penalty free prior to retirement age and there will most certainly be taxes to be paid as is the case whether you die or not.



Link Posted: 12/7/2013 4:36:03 AM EST
Awesome link. Thanks for the reply.
Link Posted: 12/8/2013 2:33:48 PM EST
There would be penalties if the donor was under 59-1/2. Distributions would be required on a schedule based on the age of the donor, not the recipient.


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Originally Posted By woodsie:



I don't know about your spouse but I can speak for your children. Having gone through this (Grandmother), I can give you limited advice that you should double check with a pro.

If I recall correctly, the 401k can be rolled over to an Inherited IRA. You may cash out of the inherited IRA without penalties but that would be an extremely foolish thing to do since you can stretch an inherited IRA over the rest of your life by only taking RMDs (Required Minimum Distributions). Why give up the tax benefit of the inherited IRA any sooner than you have to? The government would LOVE IT if you cashed it out. They've been salivating at the thought of closing the "Stretch IRA" loophole for years.

Yes, you will be taxed on any distributions you take from an Inherited IRA or 401k just like you would had it been your IRA or 401k and you reached retirement age. Once again, this advice is only based on children who inherit a 401k/IRA. The rules are likely different for a spouse but I doubt she would have the ability to cash out penalty free prior to retirement age and there will most certainly be taxes to be paid as is the case whether you die or not.



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Originally Posted By woodsie:
Originally Posted By JThompson:
Figured this was the best section in which to post.
Granted it may be an unusual topic but one that one realistically needs to think about.

When one person dies passes away is the spouse able to cash it out or must they wait until retirement age?
What happens if only the children are left? Are they able to cash it out or must they also wait to retirement age?

If either is able to cash out are they getting heavily taxed or do they get a break?



I don't know about your spouse but I can speak for your children. Having gone through this (Grandmother), I can give you limited advice that you should double check with a pro.

If I recall correctly, the 401k can be rolled over to an Inherited IRA. You may cash out of the inherited IRA without penalties but that would be an extremely foolish thing to do since you can stretch an inherited IRA over the rest of your life by only taking RMDs (Required Minimum Distributions). Why give up the tax benefit of the inherited IRA any sooner than you have to? The government would LOVE IT if you cashed it out. They've been salivating at the thought of closing the "Stretch IRA" loophole for years.

Yes, you will be taxed on any distributions you take from an Inherited IRA or 401k just like you would had it been your IRA or 401k and you reached retirement age. Once again, this advice is only based on children who inherit a 401k/IRA. The rules are likely different for a spouse but I doubt she would have the ability to cash out penalty free prior to retirement age and there will most certainly be taxes to be paid as is the case whether you die or not.




Link Posted: 12/9/2013 2:41:50 PM EST
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Originally Posted By Averagebear:
There would be penalties if the donor was under 59-1/2.
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Originally Posted By Averagebear:
There would be penalties if the donor was under 59-1/2.


You may be correct but I am having trouble finding this. Can you provide a link? I've done some Googling and all I can find is the generic statement that non-spouse heirs must start taking RMD's the year after the IRA Owner passes.


Distributions would be required on a schedule based on the age of the donor, not the recipient.


This is not necessarily the case. I have an inherited IRA and my RMD's are based on my life expectancy. They call this informally a "stretch IRA". I don't necessarily know all the circumstances where this applies but it applied to the IRA that I inherited from my Grandmother who was past the age of retirement at the time of her passing. Once again, I can not find anything online that shows where this would not be the case but would be interested in learning.

http://www.investopedia.com/ask/answers/09/stretch-ira.asp


The "stretch IRA" is not a new IRA account on the market, or even a new investment concept, it is simply a wealth transfer method that allows you the potential to "stretch" your IRA over several future generations. As an IRA owner, you are typically required to take minimum distributions from your IRA at age 70.5 based on an IRS life expectancy table. If you are fortunate enough to inherit someone else's IRA, you will be required to take minimum distributions each year from the IRA account based on your life expectancy figure - regardless of your age.



Link Posted: 12/12/2013 11:22:26 AM EST
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Originally Posted By woodsie:


You may be correct but I am having trouble finding this. Can you provide a link? I've done some Googling and all I can find is the generic statement that non-spouse heirs must start taking RMD's the year after the IRA Owner passes.



This is not necessarily the case. I have an inherited IRA and my RMD's are based on my life expectancy. They call this informally a "stretch IRA". I don't necessarily know all the circumstances where this applies but it applied to the IRA that I inherited from my Grandmother who was past the age of retirement at the time of her passing. Once again, I can not find anything online that shows where this would not be the case but would be interested in learning.

http://www.investopedia.com/ask/answers/09/stretch-ira.asp




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Discussion ForumsJump to Quoted PostQuote History
Originally Posted By woodsie:
Originally Posted By Averagebear:
There would be penalties if the donor was under 59-1/2.


You may be correct but I am having trouble finding this. Can you provide a link? I've done some Googling and all I can find is the generic statement that non-spouse heirs must start taking RMD's the year after the IRA Owner passes.


Distributions would be required on a schedule based on the age of the donor, not the recipient.


This is not necessarily the case. I have an inherited IRA and my RMD's are based on my life expectancy. They call this informally a "stretch IRA". I don't necessarily know all the circumstances where this applies but it applied to the IRA that I inherited from my Grandmother who was past the age of retirement at the time of her passing. Once again, I can not find anything online that shows where this would not be the case but would be interested in learning.

http://www.investopedia.com/ask/answers/09/stretch-ira.asp


The "stretch IRA" is not a new IRA account on the market, or even a new investment concept, it is simply a wealth transfer method that allows you the potential to "stretch" your IRA over several future generations. As an IRA owner, you are typically required to take minimum distributions from your IRA at age 70.5 based on an IRS life expectancy table. If you are fortunate enough to inherit someone else's IRA, you will be required to take minimum distributions each year from the IRA account based on your life expectancy figure - regardless of your age.





I had posted this in another thread. There is an IRS provision titled "72-T", which allows one to withdraw without penalty before the age of 59-1/2. The 72-T provision ends at age 59-1/2, where one can then pick up withdrawals under the typically understood and penalty-free provisions within the tax code. I would suggest your financial manager or CPA be advised of this potential opportunity. My former asset manager was clueless of this...I now have a better wealth manager, and will use this provision before I'm at age 59-1/2.
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