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Subject:  Re: 701/2 age stipulation Date:  1/28/2004  1:24 PM
Author:  Watty56 Number:  38791 of 90110

Sorry about your Dad,

It wasn't clear if you were talking about being required to close the 401k or just take a minimum yearly distribution.

If there is something in his 401(k) plan that requires that it be closed after he turns 70.5 then you can roll it over to a traditional IRA without paying any taxes until it is withdrawn from the IRA. To do this have the new IRA company do all the paperwork and have it transferred directly to them because doing it yourself is tricky to do without causing taxable income. If his 401k is administered by a large company like Fidelity or Vanguard then it should be possible to just open an IRA with them. This would less stressful on your Mom and you.

I'm not familiar with the rules for 401(k) minimum distributions but if they are like the traditional IRA they are not as bad as they sound since the factor in their joint life expectancy.(assuming that you Mom is the only beneficiary on the account) The table for the traditional IRA minimum distributions are at;

When you look at it be sure that you look at the very end which is appendix C table 3. As I read it looks like their distribution period is about 27 years, which means that he will be forced to withdraw between 3 and 4 % of the account. You should call the company that the 401k is with and ask them just when it needs to be done and how much.

Much of you father's health care will likely be eligible for a tax deduction on your parents income tax which will help to minimize the tax bite. They will need to itemize their deductions.

The only thing that is real urgent is to double check that this years required distribution is made because if it is not then the taxes and penalties are ridiculously high.

Be careful and don't panic and have your parents do anything without knowing the tax and estates consequences.


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