Question: In April 2024, Albert died at the age of 40. He left behind a 401(k) plan with his estate as the designated beneficiary. He was not married and did not have any children. His parents are the beneficiaries of his estate. When must the funds from the 401(k) be distributed to his estate?
Answer: As Albert died before his required beginning date (RBD), the distributions must be totally distributed by Dec. 31 of the fifth year following the year of his death.
When an estate is named as the beneficiary, the distribution rules normally depend on whether the participant dies before or after their RBD, which marks the date when the participant must start taking the required minimum distributions (RMDs) from their 401(k) or IRA.
Generally, taxpayers must start taking RMDs when they reach age 72. Due to the SECURE 2.0 Act, beginning in 2023, the RBD is now April 1 of the year following the year the account owner turned 73 for individuals who turn 72 after Dec. 31, 2022. It is 75 for individuals who turn 74 after Dec. 31, 2032.
If the participant or owner of the account dies before their RBD, distributions must be totally distributed by Dec. 31 of the fifth year following the year of their death. The beneficiary is allowed, but not required, to take distributions before that date. Given the situation, Albert meets this criterion. Therefore, the distribution must be made to the estate by Dec. 31, 2029.
If Albert had died after his RBD, the RMDs would be required to continue at least as rapidly as during his lifetime. Therefore, RMDs must be calculated using Albert’s remaining single life expectancy.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.