Rollover of a Keogh Plan
My question concerns a Keogh Plan. I read in Ed’s book, “The Retirement Savings Time Bomb” that a 401K, 403b and Keogh plan are subject to a distribution in one year if left to a non- spouse. I am told that with the Pension Reform Act of 2006 that now all qualified plans are eligible for distribution through a non-spousal beneficiary IRA during their life expectancy.
What is the correct answer? I am trying to roll a Keogh into an IRA/
Thanks!
Steve Songer[/i]
Permalink Submitted by Alan Spross on Wed, 2007-08-15 22:46
Steve,
I think Ed said in the book that the 401k COULD BE subject to withdrawal in one year, but that was the worst case scenario. Many of them allowed a longer period such as 5 years.
The PPA as passed last year allows the transfer to a non spouse inherited IRA, but did not REQUIRE the plan to offer it. There is a technical corrections bill proposed that would make the transfer a requirement, but it has not yet been passed.
What is critical in your case is the year the owner passed. If prior to 2006, your life expectancy cannot be used even if you are allowed to do the transfer. This is per IRS Notice 2007-7. However, if death was in 2006, the transfer must be done by 12/31/07 in order to use your remaining life expectancy for RMDs. If death was this year, the transfer deadline will be 12/31/08. The transfer must be direct to the IRA custodian, the check cannot be made out to you because you cannot roll it over. This is critical to avoid a full taxable distribution.
Your inherited IRA should be registered in beneficiary form, eg Steve Songer as beneficiary of Raymond Songer and be set up to receive the transfer. You should also name your own successor beneficiary on the inherited IRA immediately.