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Question for the Money Doctors

Question submitted on Jul 22, 2011.


In terms of the consequences to beneficiaries is it better to keep your money in the 401k plan of the employer you just left or put it into an IRA? Specifically, if my wife & I passed away how would my children as contingent beneficiaries have to take distributions?


In general, the IRS allows both IRAs and Qualified plans to pay the IRA out over the life expectancy of each child (unless it is left in trust for a group of beneficiaries, in which case they would look to the oldest beneficiary).  You will want to make sure that your specific qualified plan allows you to "stretch" these plan distributions over the child's life.  I have run into circumstances where the qualified plan required the beneficiaries to take the deferred dollars out (qualified plan dollars) at a faster rate than what is required by the IRS.  With an IRA this is not a problem.  IRA custodians will allow the stretch over the child's life expectancy.

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