Solo 401k participants often name their living trust as the primary beneficiary of their solo 401k plan. If the named trust beneficiary of the solo 401k meets the IRS requirements and is thus considered qualified or “see through trust,” then the underlying beneficiary of the trust (in this case the surviving spouse of the solo 401k participant) single life expectancy is used to calculate required distributions.
The Trustee of the Beneficiary Trust Will Need to Take the Following Steps:
- Open a beneficiary IRA for the benefit of the living trust with an IRA custodian.
- Transfer the deceased spouse’s solo 401k funds to the new beneficiary IRA.
- Distributions then must commence from the beneficiary IRA by December 31 of the year following the deceased solo 401k participant’s death.
- The distributions from the beneficiary IRA will flow to the living trust.
- The trustee of the living trust will then payout the funds to the beneficiary of the living trust (the surviving spouse).
The 10-Year Beneficiary Distribution Rule
Depending on the age of the deceased solo 401k participant’s in the year of death, the beneficiary IRA will need to be distributed over a 10 year period or distributions can be delayed until the end of the 10th year.
If the Solo 401k Participant Died BEFORE Age 73
If the solo 401k participant died before his or her required beginning date (RBD), then the solo 401k can transfer to a beneficiary IRA for the benefit of the trust, distributions may be taken from the beneficiary IRA anytime and in any amount as long as the beneficiary IRA is fully distributed by December 31 of the year containing the 10th anniversary of the solo 401k participant’s death.
The solo 401k participant died AFTER Age 73
If he solo 401k participant died after his or her required minimum distribution beginning date,which is age 73, and the solo 401k name beneficiary is the living trust, the solo 401k is transferred to a beneficiary IRA for the benefit of the trust and the beneficiary is required to start taking distributions immediately following the year of the solo 401k participant’s death from the beneficiary IRA based on his or her life expectancy. In sum, annual distributions are required for the first 9 years and the beneficiary IRA must be fully depleted by the end of the 10th year.
Qualified Trust Beneficiary of the Solo 401k Plan
For the trust to qualify as beneficiary of the solo 401k plan, it must meet the following:
- be valid under state law,
- be irrevocable or, become irrevocable upon the solo 401k owner’s death, and
- have identifiable beneficiaries listed.
Also, the trustee of the trust must submit a copy of the trust by October 31 of the calendar year immediately following the year of death of the solo 401k participant that reflects the surviving spouse of the solo 401k participant as the sole beneficiary of the trust.
