QRP Spouse Beneficiary rolling money into a beneficial IRA
Surviving spouse, age 57, has a 401k from deceased husband whom died in 2006. Can that spouse rollover those dollars to a beneficial/inherited IRA?
Natalie Choate’s book references under “Plans the spouse can roll
benefits into…
Although a spousal rollover usually involves rolling the benefits into
the surviving spouse’s own retirement plan or IRA, the surviving spouse
can also roll a distribution from the deceased spouse’s plan into an IRA
that is in the name of the deceased participant-spouse and payable to
the surviving spouse as beneficiary (“Beneficiary IRA”). Reg. 1.408-8,
A-7, provides that “If the surviving spouse of an employee rolls over a
distribution from a qualified plan, such surviving spouse may elect to
treat the IRA as the spouse’s own IRA ….” The fact that the spouse’s
election to treat the IRA as her own occurs after she has rollover over
the distribution into that IRA indicates that the IRA into which she
rolled the distribution was an IRA in the decedent’s name.
The PPA provision allowing post-death rollovers from a QRP to an
inherited IRA is limited to non spouse beneficiaries, but this has no
effect on rollovers by the surviving spouse. She also references a few
PLRs, but aside from that, she makes it sound like the spouse could
always roll into a deceased/inherited IRA before PPA and today.
Thoughts?
Permalink Submitted by Al Fry on Fri, 2007-12-21 22:17
The PLR that allowed this is PLR 2004 50057. The spouse is at the mercy of the QRP administrator as to whether they would allow it. Many will not. This problem has been brought to the attention of Congress, but whether it will get into a TCA or not is anyone’s guess. I have a similar situation with a 46 year-old spouse (husband’s memorial service is tomorrow). I am working with the administrator now to allow it, however it is one I have some degree of influence over.
Permalink Submitted by Denise Appleby on Sun, 2007-12-23 18:02
The challenge is also on the IRA custodian’s side, and you would be hard-pressed to find an IRA custodian that is willing to allow that too.
For instance, the exception allowed under 200450057 allowed the surviving spouse to establish the inherited IRA ‘on behalf of’ the decedent. But , many financial institution will not allow one party to establish an IRA on behalf of another party, even if they are husband and wife.
Al, how do you handle the CIP rule in such cases? Do you have them waived- considering the circumstances, and require that the surviving spouse immediately move the assets to her inherited IRA?
Permalink Submitted by Al Fry on Sun, 2007-12-23 20:55
My suggestion will be to have her open a shell inherited IRA with custodian X. Then have custodian X request the transfer from the QRP administrator (also happens to be Company X). Then I’ll work with the administrator and try to convince them to do (what I think is) the right thing. In some contacts with the Hill, they did not realize this was a problem. I tried to read through TCA 2007, however could not make much sense of it.
Permalink Submitted by Denise Appleby on Mon, 2007-12-24 00:20
Thanks Al,
I know someone who wants to do the same thing. I will suggest that they use your method.
Permalink Submitted by Denise Dawson on Mon, 2007-12-24 15:51
I think we missed the point…. the question was not how to do the transfer is does the law allow it? All I see is a PLR that allowed it based on circumstances of THAT particiular case and now clients and brokers think it’s a gospel. Outside of the PLR, what section of the code states that a surviving spouse can rollover assets into a beneficial/inherited IRA?
Permalink Submitted by Al Fry on Mon, 2007-12-24 17:46
Not there yet. However spouses have always been given rights at least equal to or exceeding non-spouse’s rights. Everyone believes this was simply an oversight in PPA2006. From what I have heard, Congress thought spouses already had that right. I would hope that QRP administrators would follow the spirit of the law, by following the PLR. I have yet to talk to the admin (TPA) on my case.
Permalink Submitted by Denise Dawson on Mon, 2007-12-24 17:55
I would agree that is doesnt make much sense and it probably was the spirit of the law. Until technical corrections are issued though, with a large IRA, you would want your own PLR.
Thank you for everyones insight!
Permalink Submitted by Al Fry on Mon, 2007-12-24 18:10
Another option is a “Plan Distributed Annuity” which IS in the law (IRC Sec. 402(g)). I’m just not sure the carrier would administer it as a spouse’s contract or not (no RMDs until spouse’s age 70 1/2, and ability to roll it to herself at age 59 1/2).