Question for you financial/accounting types :-)

My dad passed away and has an old workplace 401k (with KBR - Kellogg Brown & Root) and he did not have a living beneficiary named in the account. Since there was no beneficiary, the account automatically goes to an Estate 401k account.

And because of that, Fidelity, who manages the 401k, is telling us the only option is to cash out! I was thinking we could rollover the 401k into an Inherited IRA.

The workplace 401k guru I spoke to at Fidelity said that each workplace plan has different rules and KBR set this up that way. We have no choice.

My brother spoke to his 401k guru friend at Edward Jones and that guy says "BS!" and we should call Fidelity and insist we rollover to Inherited IRAs.

What say you TexAgs? Can the KBR 401k plan require cash out?

I'm clueless about your situation. However, ours will be drained over ten years into a trust through our financial guy as ordered by our executor.

LeftyAg89 said:

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Question for you financial/accounting types :-)

My dad passed away and has an old workplace 401k (with KBR - Kellogg Brown & Root) and he did not have a living beneficiary named in the account. Since there was no beneficiary, the account automatically goes to an Estate 401k account.

And because of that, Fidelity, who manages the 401k, is telling us the only option is to cash out! I was thinking we could rollover the 401k into an Inherited IRA.

The workplace 401k guru I spoke to at Fidelity said that each workplace plan has different rules and KBR set this up that way. We have no choice.

My brother spoke to his 401k guru friend at Edward Jones and that guy says "BS!" and we should call Fidelity and insist we rollover to Inherited IRAs.

What say you TexAgs? Can the KBR 401k plan require cash out?

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Not the same, but my dad had an irrevocable trust. I'm doing an in-kind transfer, so I don't have to cash out. It has some short term capital gains, etc.. so I don't want to cash out.

Maybe use the term "in-kind transfer" rather than rollover and see what they say.

That's what I was wondering. I've never heard of having an issue moving to an inherited IRA. I'm assuming it might just be terminology issue between the OP and Fidelity rep.

I may give them (Fidelity Workplace 401k support group) a call back but the guy I talked to on Friday said he specifically handles KBR plans and he reviewed the KBR 401k docs he has, and said "Most companies do allow it, but KBR only allow cash-out".

LeftyAg89 said:

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I may give them (Fidelity Workplace 401k support group) a call back but the guy I talked to on Friday said he specifically handles KBR plans and he reviewed the KBR 401k docs he has, and said "Most companies do allow it, but KBR only allow cash-out"

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Check out indirect rollover.

Indirect Rollover Definition, Rules, Requirements

• An indirect rollover transfers funds from a tax-deferred retirement plan to an investor, who transfers the funds into another tax-deferred retirement account.
• With an indirect rollover, the full distribution amount must be redeposited into another qualified retirement account by a deadline60 daysto avoid income taxes and penalties.

First sorry for your loss.

Are you the only beneficiary? I.e. no living spouse or other children? Is there a will, will you probate?

If the amount is substantial you should likely hire a CPA as you will want them to help with estate taxes anyway. As mentioned above you might be able to do an indirect rollover but going that way will need to be handled correctly which is why a CPA will be useful.

If I had to guess it will likely need to be cashed out, but there isn't enough information to know for sure.

Also because of the SECURE act and how you would now have to take all the distributions in the next 10 years, depending on what your marginal tax rate is, it might be better for the estate to take the tax hit anyway.

TLDR; sorry for your loss and hire a CPA and probate lawyer if the amount is 5 figures or more.

Thank you.

There are 3 of us (two siblings + me) co-executors and yes we went through probate last year.

My mother was the only beneficiary on the KBR 401k however she pre-deceased him so therefore the plan was automatically put the name of "The Estate of ...."

It is pretty significant (greater than 5 fig) amount and yes my dad's accountant has already been contacted about handling the estate filings, so now we are thinking about this account.

I've seen it before. If there are no beneficiaries listed, it defaults to the spouse. If there is no surviving spouse, it goes to the estate. Each plan will have different rules for the beneficiaries after it gets through probate.

Edit: wrong emoji

I don't believe you'll have much recourse here unfortunately. When you aren't listed as beneficiary it goes to the estate and is dispersed from there.

I've only ever seen one scenario called division and assignment that would allow this to be fixed. But that would probably be up to the custodian (Fidelity) to decide whether to allow that. Basically that allows the custodian to review a will and then let the will determine who the beneficiary was since it wasn't on the account as it should have been.

I hate to say it but it's not a high chance of working out for you. I hope I'm wrong.

I could be wrong but don't believe you can do this when it's inherited like this situation.

Your basis in the 401-K is the value on the date your Dad died, so I would think any tax consequences would be minimal to his heirs. If you cash it out, you can do anything you want with the money, so I'm not sure I understand the concerns. The reason individuals like to roll-over 401-Ks or similar investments is to avoid the tax consequences, but because your basis was updated to the date of your father's passing, the tax consequences should be minimal.

nactownag said:

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No. The basis is zero.

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This...

Unless it's a Roth 401k or had after tax contributions in it (rare, and unlikely you have the paperwork to establish this basis anyway) the stock was purchased with pre tax dollars and thus the full amount is taxable.

Question for the CPAs on this thread, could the estate distribute the funds with a k1 and mark them as taxable to pass the tax to the beneficiaries? If they are in lower marginal tax brackets it might work out better.

Absolutely the estate will issue a k1. Anything else would be terribly higher tax bill.

LeftyAg89 said:

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I may give them (Fidelity Workplace 401k support group) a call back but the guy I talked to on Friday said he specifically handles KBR plans and he reviewed the KBR 401k docs he has, and said "Most companies do allow it, but KBR only allow cash-out".

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You should have copies of these docs and know what they say regarding this potential transaction. Don't take the Fidelity dude's word for it.

Fireman said:

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Your basis in the 401-K is the value on the date your Dad died, so I would think any tax consequences would be minimal to his heirs. If you cash it out, you can do anything you want with the money, so I'm not sure I understand the concerns. The reason individuals like to roll-over 401-Ks or similar investments is to avoid the tax consequences, but because your basis was updated to the date of your father's passing, the tax consequences should be minimal.

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OP, seek professional advice so you avoid **** like this