Should this 403(b) be Rolled to an Inherited IRA ???
Wife dies with 500K in Univ. of CA 403(b).
Retired husband is beneficiary and age 69.
Fidelity is the custodian.
Husband is also a former Univ. of CA employee and has a 403(b) there too. He likes Fidelity but wants to know if an IRA would be better than a 403(b)?
Is the husband giving up any statutory options by leaving the wife’s 403(b) in the Univ. of CA plan?
Is this even an option now that Sept. 24th has past and 90-24 transfers are not permitted?
See http://www.403bwise.com/wisemoves/newtransferrules.html
I suppose I should get a copy of the plan document and check out what plan options and limitations are but if you know of something obvious, please let me know.
I was thinking the husband might have more “stretch” options with the IRA but I am not sure.
Thanks Much,
Glenn
Permalink Submitted by Alan Spross on Mon, 2007-12-03 21:29
The IRA rollover is generally the best option. But three factors to be considered are:
1) CA has minimal state creditor protection of IRAs, so superior ERISA protection in the plans should be considered based on any perceived creditor exposure he has. If he does roll them, he should keep them in separate IRA accounts so if he falls under the Bankruptcy Protection Act, at least there will be no dollar limit on plan rollovers.
2) If stretching RMDs to the max is a factor, note that accounted for pre 1987 403b accruals are not subject to RMDs until age 75.
3) Age of wife not stated, but if younger than husband, no RMD is required on her account until the year she would have turned 70.5 (for other than pre 1987 accruals). This is also true if the plan is transferred to an inherited IRA rather than his own IRA. The inherited IRA can then be assumed when beneficiary RMDs must begin.
The termination of the 90-24 option should have no bearing on the above transfers after death or separation from service.
Permalink Submitted by Glenn Hammill on Tue, 2007-12-04 20:06
Thank you Alan for your excellent and timely response.
Re #1, this is a good point, but I don’t think my client will view it as too important. Good to know!
Re. #2, I didn’t know this. Wow. Any chance you have a site for me to look it up and learn more about it?
Re. #3, yes wife was quite a bit younger when she died. She was 59. This is good to know that he should probably treat it as an “inherited IRA”. He can name his own beneficiaries, right?
Finally, you wrote, “The IRA rollover is generally the best option”.
What are the main reasons for this?
Thanks much!!!
🙂
Glenn
Permalink Submitted by Alan Spross on Wed, 2007-12-05 04:18
Glenn,
The following is pasted from Pub 571 on 403b accounts:
>>>>> >>>>>> >>>>>
Minimum Required
Distributions
You must receive all, or at least a certain mini-
mum, of your interest accruing after 1986 in the
403(b) plan by April 1 of the calendar year fol-
purlowing
the later of the calendar year in which you
become age 701/2 or the calendar year in which
you retire.
Check with your employer, plan administra-
tor, or provider to find out whether this rule also
applies to pre-1987 accruals. If not, a minimum
amount of these accruals must begin to be dis-
tributed by the later of the end of the calendar
year in which you reach age 75 or April 1 of the
calendar year following retirement, whichever is
later. For each year thereafter, the minimum
distribution must be made by the last day of the
year. If you do not receive the required minimum
distribution, you are subject to a nondeductible
50% excise tax on the difference between the
required minimum distribution and the amount
actually distributed.
For more information on minimum distribu-
tion requirements and the additional tax that
applies if too little is distributed each year, see
Publication 575.
>>>>> >>>>>> >>>>>
Re #3,
Yes, he should be able to name his own successor beneficiary. Deferral of the first RMD to the year deceased spouse would have reached 70.5 applies whether he retains the 403b in inherited form OR if he transfers it to an inherited IRA. This advantage then is the same regardless of type of account. If there is any problem naming a successor beneficiary in the plan, then the IRA could provide that option for him.