Navigating Inherited 401(k) Accounts: Understanding RMDs
As a retiree, managing inherited retirement accounts can be complex. If you’ve inherited a 401(k) from your spouse, you may be wondering when you need to take Required Minimum Distributions (RMDs). The answer depends on how you choose to handle the inherited account.
Rolling Over into Your Own Account
One option is to roll the inherited 401(k) into your own 401(k) or IRA. This will treat the funds as yours, subject to the same RMD requirements as your own accounts. As a 74-year-old, you would need to take an RMD by December 31, calculated using your age and the Uniform Lifetime Table.
Transferring to an Inherited IRA
Alternatively, you can transfer the funds into an inherited IRA. This allows you to delay RMDs until the later of two deadlines: December 31 of the year your spouse would have turned 73 or December 31 of the year following their death. In your case, this could mean waiting a couple of years before taking RMDs. However, RMDs would still be calculated based on your age.
The 10-Year Rule
Another option is to distribute the entire account by December 31 of the 10th year after your wife’s passing. This would save you the hassle of calculating RMDs during those first nine years and reduce taxes. However, it could lead to a larger tax bill in the 10th year.
Roth Conversion
You could also convert some or all of the inherited 401(k) balance to a Roth IRA. This would eliminate RMDs for the converted amount, but subject it to taxes in the year of conversion. This might be beneficial if you expect to be in a higher tax bracket later in retirement.
Seeking Professional Guidance
With multiple options available, it’s essential to consider your individual circumstances and goals. Consulting a financial advisor can help you make an informed decision and navigate the complexities of inherited retirement accounts.
Finding the Right Advisor
SmartAsset’s free tool can match you with up to three vetted financial advisors in your area. Take advantage of a free introductory call to find the right advisor for you. Remember to ask the right questions to ensure you’re making the best choice for your financial future.
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