401k Roll Over To Parents?

Discussion in 'Money Matters' started by EagerForInfo, Dec 26, 2020.

  1. nuss

    nuss Platinum IL'ite

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    All financial decisions are personal decisions based on the risk tolerance of the person. That’s exactly why I said “personally” I wouldn’t. I am not a financial advisor so I could only say what I would do in a situation like this.

    She should choose whatever is best for her.
     
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  2. Laks09

    Laks09 Moderator Staff Member IL Hall of Fame

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    Within the 401k you can move it around without withdrawing and paying the penalty. For an old employer’s 401k, you should technically roll it over into an IRA of some kind. The market keeps regulating itself. Market predictions alone shouldn’t dictate when to withdraw.

    You need someone to look at your entire portfolio and give you some good tips. When you are making such decisions as withdrawing from 401k, it’s not just the 401k that’s impacted. Someone has to look at your taxable income, your other assets, check if it makes financial sense to withdraw. Just because it’s a right time market wise for some people to take it out now, it may not be the best option for you. Without knowing the entire picture, nobody can give you the right answer. This is a good reason for you to shop around for a financial consultant or asset manager.
     
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  3. nuss

    nuss Platinum IL'ite

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    @EagerForInfo thank you for asking this great question. Now, I am curious what you find out from a financial planner. Please do let us know.

    You might want to call the account manager and see what your options are. We rolled over our previous accounts to IRA and one of the accounts to the current employers retirement account (it was direct roll over).
    If the amount is not huge and you are willing to pay taxes, you can withdraw. However, my understanding is that you will need to declare this to IRS and show as a gift to your parents. Otherwise, the withdrawal will be considered income and that might push you to the higher tax bracket (if you aren’t already in one).
    As @Laks09 said, you cannot make this decision without looking at your complete financial situation.
    Please do post once you find out your options.
     
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  4. EagerForInfo

    EagerForInfo Gold IL'ite

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    Ok I am happy with gifting $15000. But how does that work? How do we start doing this?
     
  5. Hopikrishnan

    Hopikrishnan Platinum IL'ite

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    LOL!! There is NO OTHERWISE. Withdrawals from any and all retirement accounts is an INCOME creating taxable event, at any age, by owner or beneficiary. LOL happened because i remembered that old proverb — Ram Lila Paaraayan all night, then devotee asks: Is Sita Ram’s niece?

    Couple of "asides":
    When a spouse inherits a 401K, or IRA balance from her/his decedent spouse, the amount can be rolled into one's own IRA. This is not a taxable event. However, if there is a lumpsum distribution to the beneficiary-spouse, most fiduciary companies would withhold some x% (upto 30%) for Federal Taxes.

    Financial advisers (who also sell life insurance on the side, to make an additional living) would often point out that Lumpsum Life Insurance Payouts to beneficiaries is not taxed as INCOME by the Federal Government. Imagine a retired person withdrawing a monthly amount from her/his retirement account, and paying taxes on it (both federal, and if applicable, state tax also) and decides that in order to leave some tax-free money to the beneficiary (spouse or kids) after his/her death, they would take some of the after-tax money each month, and pay the insurance premium for a life insurance policy. This is one way to gift a lump-sum (below the inheritance tax limit of 11.5 million dollars), tax-free; but unfortunately, one has to die to achieve this.
     
    Last edited: Dec 28, 2020
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  6. Hopikrishnan

    Hopikrishnan Platinum IL'ite

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    Glad that your 401k issue is resolved. Name your husband the beneficiary on that 401k account. He will be happy to give you lots of money. No gift tax when any amount of money goes between joint tax filers. Then you give some of that to whoever you want by writing a cheque.

    It is always a good idea to write a MEMO line on the cheque, such as "gift to dear mummy for 2020 mother's day", or "gift to niece in 2020 for being so lovely" etc... Mention the year in the memo-line. All transactions over $10000 is reported by the bank to the US Treasury. Banks also keep a tab on unusual things in your account.... and have to report that also. If your normal behavior is to deposit $5000 each month, and withdraw $4800 each month, a sudden change to deposit (or withdrawal) $12000 one month would throw up a flag, and cause a report.
     
    Last edited: Dec 28, 2020
  7. EagerForInfo

    EagerForInfo Gold IL'ite

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    Another option ? Can I roll the 401K over to my parents 401k? They are above 65 so if they withdraw it from their 401k there will be no fine or penalties . Moreover they are listed as my beneficiaries... just thinking of all the options here..
     
  8. nuss

    nuss Platinum IL'ite

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    I am so glad it made you laugh. In an unpredictable and mostly sad year it is nice to have some days of hearty laughs.
     
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  9. MalStrom

    MalStrom IL Hall of Fame

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    Short answer no.
    And beneficiaries will only receive the funds when the person who owns the 401k is no more. You should schedule a call with a benefits counselor at work or a financial planner to find out what your best options are.
    You don’t always have to roll over funds when you leave an employer. I have an old 401k that has far better choice of funds than my current employer so I’ve left everything as is even though I left that job 10 years ago.
     
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  10. Hopikrishnan

    Hopikrishnan Platinum IL'ite

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    Talking of all options.... here is a useful site
    Naming a Beneficiary In Your 401k - 401khelpcenter.com
    One of the rules of inheriting a 401K is that ONLY the spouse can make the inheritance a non-taxable affair by rolling that over into her/his own IRA. No other beneficiary (child, parent, friend, cousin-sister) has this option.
    How Is a 401(k) Paid Out Upon Death?
     
    Last edited: Dec 29, 2020

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