minor inherited a 401K

Forum|Forum|1 year ago
June 22, 2025
15 replies
341 views

situation is, deceased grandmother listed minor grandchild as beneficiary or 401k (no custodian named). Grandmother had started started taking RMDs. Financial institution won't release/distribute the 401K to the minor beneficiary until the minor turns 18, so no one will have access to the account for several years.

What are the implications for RMD's and associated income tax on those RMD's when there is no access to the account in order to actually transact the RMD's? At this point, technically the financial institution won't even tell me (the minor's parent) what the 401K account balance is, though I can probably approximate it's value from other available information.

Bsch4477

Level 15

A minor cannot own an asset. The court will appoint a custodian if none was named in the will.

TS61Author

Level 2

probate court did not. Of course probate court doesn't deal with assets directed by beneficiaries.

Opus 17

Level 15

There are likely required distributions, so you need to get this figured out. I'm going to page the best expert on the topic, @dmertz

I agree with the others that someone needs to be appointed guardian or custodian for the child -- presumably that could be you if you are the child's parent. The court could also appoint an independent financial advisor but they will take a fee off the top to administer the account.

I'm going to assume this happened in 2025. If the grandmother was past the age where she is required to take RMDs, and did not take her RMD for 2025, the beneficiary must withdraw and amount equal or more than the grandmother's RMD and include it in their taxable income for 2025. Then, the beneficiary must withdraw their own RMD starting in 2026. If the grandmother was not past the age to take RMDs, the beneficiary does not have to make a withdrawal this year (but can if they want to), but does need to start taking withdrawals in 2026. The beneficiary generally has 10 years to withdraw all the money and close the account. (The rules might be different here, which is why I paged an expert.)

Also, the tax issues for withdrawals are complicated for a minor. Until the child turns 19 (or possibly 24, if they go to college) their withdrawals may be taxed at a higher rate due to the "kiddie tax". If the account is of significant size, you may want to hire a financial and tax planner to figure out the best strategy to pay the least tax, depending on the child's age, other income, status as a student, and marital status.

fanfare

Level 15

You the parent will be shown on the inherited account as custodian for minor child, along with the child.

You will be able to take required RMDs or take any other actions, including investment decisions..

Get clarification from the custodian.

@TS61

TS61Author

Level 2

unfortunately no, the financial company won't transfer to a minor at all and the beneficiary only lists the minor's name. so there is no account to access as they won't initiate the transfer to a minor and they won't ADD a custodian without a court order.