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I am 74 years old (I was born February 2, 1948). My wife and I both worked for Aetna, but have retired and have a 401(k)so from work with Vanguard. I received his 401(k) as a spousal inheritance and kept it in a separate account. I plan to take RMDs on her account but I'm not sure if I have the option to take the RMDs based on her age or mine. She had not started taking RMDs on her account as she was not 72. Can you confirm what age (hers or mine) I should use for the first RMD withdrawal, and by what date the That RMD? I think there is a provision in the law that states that with a spousal inheritance, you don't have to start taking RMDs from an inherited account for a year after the year of death.
– Gary
That date and amount first minimum distribution required (RMD) depends on what you decide to do with the inherited 401(k). The answer will vary based on whether you are rolling the money into your own 401(k) or IRA; transfer the account to an inherited IRA and take RMDs from it; roll over the money into an inherited IRA and follow the so-called 10-year rule; or do a Roth conversion. Here's a closer look at those options and what they mean for RMDs. (And if you need more help planning for RMDs or taxes in retirement, talk to a financial adviser.)
As a surviving spouse, you have the option of rolling over the inheritance 401(k) into your own 401(k) or IRA. You could roll it into an existing account to open a new IRA to receive the rollover.
If you go this route, the money will be treated as your own and become subject to the same RMD requirements as if you had kept it in your account all along. As you are 74 and no longer working, you would need to take an RMD by December 31 and the amount would be calculated using your age and the Uniform Life Table. (But if you need more help calculating your RMDs, consider matching with a financial adviser.)
Transferring money to an inherited IRA is one way to manage an inherited 401(k).
Instead of rolling it into your own IRA, you could instead transfer it into An inherited IRA. The advantage of this is that it allows you to defer RMDs until the later of two deadlines:
In your case, it sounds like this would allow you to wait a few years before taking RMDs. As long as you take your first RMD by December 31 of the year your wife would have turned 73, you should avoid penalties.
At that point, however, RMDs would still be calculated based on your age. You would not be able to use your wife's age to reduce the RMD amount. (A financial advisor it may help you manage inherited retirement accounts and other assets.)
Since RMDs had not already started, you could choose not to take RMDs at all as long as the entire account is distributed by December 31 of the 10th year after your wife's death.
This would save you the trouble of calculating RMDs during those first nine years, and it would save you taxes in those years as well. However, it could result in a much larger tax bill in that 10th year, and the entire balance would have to be distributed much earlier than if you were taking RMDs according to the Vested Life Table. (And if you need help finding a financial advisor to guide you through this process, this tool can match you with up to three advisors that serves your area.)
A man is considering rolling an inherited 401(k) into his IRA and then completing a Roth conversion.
Another option would be to convert some or all of the inherited 401(k) balance into a Roth IRA. This would eliminate the need for RMDs for the amount being converted since Roth IRAs are not subject to RMDs.
It would, however, be subject to the amount converted to taxes during that year. That could benefit you if you are likely to be in a higher tax bracket later in retirement. Otherwise, it may not be worth the cost.
You'll probably be best off with the first or second option as they both allow you to spread those classes out over your lifetime. The main difference is when those RMDs must begin. If you transfer the assets to your own account, they will be part of your RMD calculation for this year. If you keep the assets in an inherited IRA, you can wait until the year your spouse would have turned 73 before taking RMDs. The required distribution amounts will still be based on your age, but those extra tax years could be beneficial.
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Matt Becker, CFP®, is a SmartAsset financial planning columnist and answers readers' questions on personal finance and tax issues. Do you have a question you would like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Matt does not participate in the AMP SmartAsset platform, nor is he an employee of SmartAsset, and has been compensated for this article.
