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jjf2008
Level 3

Am I required to report it on my Tax form 1040-SR?

Am I required to report it on my Tax form 1040-SR?   My husband passed in Feb. 2020. Monies are sitting in a 457(b) Plan & a 457(b) Rollover (Pre-Tax) account because I am not sure what to do?  The account is exactly the way my husband left it except I am the new owner. He was 69 and I was 82 at the time of his passing. We were married 45 years.  Should it be reported? 

1 Best answer

Accepted Solutions
jtax
Level 9

Am I required to report it on my Tax form 1040-SR?

@jjf2008 I am so sorry for your loss.

 

I am most familiar with IRAs but I believe the rules are the same for these issues. Please verify that with your advisors (see below for recommendations)

 

In this I assume that your husband designated you as his only beneficiary on the plan. If he didn't have a bene designation and it goes through his estate ask again because the complicates things.

 

If you didn't take any distributions from the account during 2020 then you do not need to report for income-tax purposes in 2020. This is for two reasons.

 

  1. the COVID-19 relief bills waived all RMD requirements for 2020. So no there are actually no RMDs for anyone in 2020.
  2. your husband was too young to have been required to take RMDs. If he had been older and had an RMD requirement either he or you would have had to take it in 2020.
  3. your RMD do not start until the year after the account owners death so 2021 here.

 

| Does the IRS required RMD by a certain age for 457 Plans inherited? 

 

Yes. It was 70.5 but now it is 72. Since you are older than that you will need to start RMDs in 2021. Make sure you figure this out (see below for some suggestions) in plenty of time to take the RMD in 2021 (e.g. don't leave it until December). The penalties for not taking the RMDs are huge.

 

| If they do, whos age does the IRS go by?  My husbands age at death, or my age? 

 

They go by your age because your husband had not yet reached the required min age. If your husband has started his distributions I think you choose could have stayed with his schedule (based on his age) or used your own age. You should verify that with you advisor but I think it's right.  

 

| Can the 457 plan funds just sit in the account without any action on my part? 

 

You should call up the 457 plan custodian and get the account re-titled in your name. I'm not sure how they do that for 457 for for an IRA if your husband was John Doe and you're Jane, his account would be something like: John Doe IRA and after you inherit it would be Jane Doe IRA beneficiary of John Doe.

 

One of the reasons you should do that now is so that you can pick a beneficiary should you pass, rather than your estate (which might require probate).

 

You don't have to change the investment options if you don't want to.

 

| Is there a maximum number of years the 457 Plans must be dissolved?

 

No. The RMDs must be taken each year. The are calculated so that if one lives to the average life expectancy and there is [edit] no appreciable gains in the account it will all come out in the year of death. But in with good investment returns (or premature death) there can easily be a lot of money left in the account.

 

Note the RMD is a minimum. You can always take more out if you need to spend the money (but there will be taxes on it, so usually better to spread it out).

 

I'll do another message about advisors. 

 

 

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9 Replies
ColeenD3
Employee Tax Expert

Am I required to report it on my Tax form 1040-SR?

No, if there has been no distribution, then it isn't income.

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fanfare
Level 15

Am I required to report it on my Tax form 1040-SR?

You need a financial planner or financial adviser to evaluate your situation and make sure you take any required actions in 2021,

They will probably try to put you into an annuity. Be careful.

jjf2008
Level 3

Am I required to report it on my Tax form 1040-SR?

Thanks for the heads-up for 2021, but what about 2020?

 

Sounds like for 2020, I have a choice of legally allowing the government to rob me thru RMDs, or allow a financial planner or financial adviser to legally sell from me.  Not much choice, is it?

 

You said, "They will probably try to put you into an annuity. Be careful."  Any major pitfalls to be carefully of? 

 

What about 2020?

jjf2008
Level 3

Am I required to report it on my Tax form 1040-SR?

Does the IRS required RMD by a certain age for 457 Plans inherited?  If they do, whos age does the IRS go by?  My husbands age at death, or my age?  Can the 457 plan funds just sit in the account without any action on my part?  Is there a maximum number of years the 457 Plans must be dissolved?

 

 

jtax
Level 9

Am I required to report it on my Tax form 1040-SR?

@jjf2008 I am so sorry for your loss.

 

I am most familiar with IRAs but I believe the rules are the same for these issues. Please verify that with your advisors (see below for recommendations)

 

In this I assume that your husband designated you as his only beneficiary on the plan. If he didn't have a bene designation and it goes through his estate ask again because the complicates things.

 

If you didn't take any distributions from the account during 2020 then you do not need to report for income-tax purposes in 2020. This is for two reasons.

 

  1. the COVID-19 relief bills waived all RMD requirements for 2020. So no there are actually no RMDs for anyone in 2020.
  2. your husband was too young to have been required to take RMDs. If he had been older and had an RMD requirement either he or you would have had to take it in 2020.
  3. your RMD do not start until the year after the account owners death so 2021 here.

 

| Does the IRS required RMD by a certain age for 457 Plans inherited? 

 

Yes. It was 70.5 but now it is 72. Since you are older than that you will need to start RMDs in 2021. Make sure you figure this out (see below for some suggestions) in plenty of time to take the RMD in 2021 (e.g. don't leave it until December). The penalties for not taking the RMDs are huge.

 

| If they do, whos age does the IRS go by?  My husbands age at death, or my age? 

 

They go by your age because your husband had not yet reached the required min age. If your husband has started his distributions I think you choose could have stayed with his schedule (based on his age) or used your own age. You should verify that with you advisor but I think it's right.  

 

| Can the 457 plan funds just sit in the account without any action on my part? 

 

You should call up the 457 plan custodian and get the account re-titled in your name. I'm not sure how they do that for 457 for for an IRA if your husband was John Doe and you're Jane, his account would be something like: John Doe IRA and after you inherit it would be Jane Doe IRA beneficiary of John Doe.

 

One of the reasons you should do that now is so that you can pick a beneficiary should you pass, rather than your estate (which might require probate).

 

You don't have to change the investment options if you don't want to.

 

| Is there a maximum number of years the 457 Plans must be dissolved?

 

No. The RMDs must be taken each year. The are calculated so that if one lives to the average life expectancy and there is [edit] no appreciable gains in the account it will all come out in the year of death. But in with good investment returns (or premature death) there can easily be a lot of money left in the account.

 

Note the RMD is a minimum. You can always take more out if you need to spend the money (but there will be taxes on it, so usually better to spread it out).

 

I'll do another message about advisors. 

 

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

jtax
Level 9

Am I required to report it on my Tax form 1040-SR?

My advice is to a financial planner who is either a CFP ("certified financial planner") who works a lot with retired people or a CFRA ("certified retirement financial advisor").  Those credentials mean something. Any one else can say they are financial advisor/planner, but they may not know anything.

 

I also recommend that you favor using someone who charges you for the advice they give you, a "fee-based planner." They might charge $500 or $2000 but you know they won't be trying to steer you to investments that they get a cut of. 

 

If you don't want to pay out of pocket but prefer the cost to be hidden in investment fees, then as was suggested above stay clear of advisors trying to sell you annuities. They get big commissions and annuities are usually bad unless you make tons of money or are worried about outliving your assets because of likely above average longevity.  Also it would be a big plus if the advisor was a "fiduciary." A fiduciary is legally required to act in your best interests. Most advisors are not fiduciaries and are held to a lower standard (their own commission interest,etc.)

 

You could also start with a company like Vanguard and see what they can do for you. I like them (but do not work for them) because they are the only big investment company that is owned by its mutual investors. They are low cost and can hook you up with a CFP.

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jjf2008
Level 3

Am I required to report it on my Tax form 1040-SR?

OMG, you are an absolute Tax genius!  That is the truth.

 

For days on end, I've been worried about my situation.  Like a surgeon, you skillfully and methodically went through my questions and answered them without hesitation.  I am not sure the going rate for a Financial Advisor is, but you are well worth anything you charge.  I would surely pay for your Expert Services.

 

I truly thank you for everything.  I am going to print you message and implement all the suggestions, advise, and recommendations.  Your knowledge is unequal.

 

Thank you very much.  You have been a huge help.

 

 

jjf2008
Level 3

Am I required to report it on my Tax form 1040-SR?

They don't get any better than you!


You are very wise and extremely smart. 

 

Thank you.

fanfare
Level 15

Am I required to report it on my Tax form 1040-SR?

Contact Fisher Investments.

They really dislike annuities.

They will send you a brochure about it.

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