Spousal Solo 401k Beneficiary Question

QUESTION:

In the event that I die,  can my spouse rollover my solo 401k to his own Roth IRA and continue to be exempt from having to take RMD’s from the Roth IRA?

ANSWER:

Assuming you are referring to the Roth solo 401k designated account funds,  yes your understanding is correct, as under the current Roth IRA regulations the surviving spouse of the Roth solo 401(k) can transfer the Roth solo 401k funds to his or her own Roth IRA; therefore the ROTH IRA will not be subject to required distributions. This is a Roth IRA distribution exception and  is only afforded to spousal beneficiaries. Reason being, unlike non-spouse beneficiaries (e.g., the decedent’s daughter) who must transfer the solo 401k funds to a beneficiary IRA if they choose not to take a lump-sum distribution , the regulations allow for the surviving spouse to essentially treat the inherited funds as his or her own when transferred to an IRA. This means the spouse can treat the new IRA as always having been her own IRA.   To learn more about beneficiary solo 401k rules, CLICK HERE.

My Wife vs My Trust as Beneficiary QUESTION:

I want to make sure I understand the mechanism involved in this process. Currently my wife and I’s Solo 401k assets are held in the  Solo 401k Trust.  Does that mean upon her and my deaths the assets from the Solo 401k Trust would flow directly into our “living revocable” trust and be distributed accordingly?

ANSWER:

Upon your death, your solo 401k funds would flow to the living trust if the living trust is the primary beneficiary. Distributions would than commence through the living trust by 12/31 of the year following your death which would subject the pre-tax funds to federal and state taxes. Therefore, it may be best to name your spouse as the primary beneficiary instead of the living trust so that she could then transfer the funds to her own solo 401k or or her own IRA. This would allow her to continue growing the retirement funds without having to take distributions until she reaches age 72.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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