I inherited a 401(k) from my spouse. He was 50 when he passed away. What are my options with the 401(k)?

ANSWER

The BIDaWIZ Team's Answer:

The best options would likely be to keep the 401(k) account open or rollover to an existing retirement account. In the case of keeping the account as is, the monies are maintained in a beneficiary 401(k) account in the name of the original participant. The spouse can take withdrawals without owing a penalty even if they are under age the age of 59½. However, withdrawals are still subject to ordinary income tax. The surviving spouse can certainly rollover this 401(k) into an IRA when they reach 59 1/2. Please note that this option largely depends on the specific employer rules for beneficiary spouses. Another good option to consider would be to rollover the funds into the spouse's existing retirement account. This will provide more flexibility in the investment options and the spouse can name their own beneficiaries. In this case, the surviving spouse would need to take required minimum distributions based on their own life expectancy. Another option to consider would be to rollover the funds into an inherited IRA. This will provide flexibility in the investment options and they can name their own beneficiaries. However, the surviving spouse will be required to begin taking minimum distributions by December 31 of the year following the deceased owner's death and the distributions will be calculated over their own life expectancy. This guidance is referenced in Section 401 and 408 of the internal revenue code.