ROBS 401K Inheritance Rule – Question
My wife and I own and operate a UBreakIFix franchise in Texas. We primarily funded the business with retirement funds from my former employer 401k via a ROBS 401K Business Financing plan (she also invested a relatively small amount of funds from her savings). I have designated my spouse as my sole primary beneficiary. What happens if I die and my spouse survives me? Robert in Dallas, Texas
ROBS 401K Inheritance Rule -Answer:
Since you designated your spouse as your sole primary beneficiary, she will inherit your 401k account (including the company stock issued in exchange for the ROBS 401k investment). The account will be treated as if it was her account from the beginning and she will not be required to take a required minimum distribution (RMD). She will now be the sole owner of the business and can choose to operate the business going forward.
Here are some additional practical steps to ensure a smooth transition after you pass away:
- Provide a copy of your beneficiary election form to not only your ROBS 401k plan provider but also your estate planning attorney or advisor;
- Designate your spouse as a Co-Trustee of the 401k plan will make it easier to transfer your 401k account after you die;
- Provide your spouse access to the business bank account of the C-corporation in order to make it easier for your surviving spouse to operate the business after your pass away (e.g. pay payroll and other expenses, etc.).
