TIAA 403(b)
Client age 69 died in 2007 – 1.6 mil in 403(b) at Michigan State 403(b) with TIAA-CREF as plan administrator – 15 beneficiaries – oldest is a 100 years old – youngest is 33.
My client does not know if the beneficiary election form has all 15 listed or if a trust is listed as beneficiary (he has a copy of the trust and is listed as a named bene in the trust)
Michigan State never elected the option to allow non-spouse inherited IRA’s under Cref’s plan document
My question is – does it matter if the actual 403(b) beneficiary election form names the 15 beneficiaries specifically – which in this case would mean a lump sum or 5 year payout – or
If the trust was named as the beneficiary and the trust has inherited IRA provisions – can we still stretch the payments – if so do we have to use Grandma’s age of 100?
Permalink Submitted by Alan Spross on Tue, 2008-01-22 21:31
If the MS plan has not or will not in the coming months adopt the non spouse IRA transfer AND the plan provision for deaths prior to the RBD specifies the 5 year rule, then it does not matter what provisions are in the trust or whether the beneficiaries are individuals.
If the plan does agree to the inherited IRA transfer, then if the beneficiaries are individuals, they can receive the stretch and create separate account by the appropriate deadline. If the beneficiary is a qualified trust, then the oldest trust beneficiary dictates the life expectancy for all. In this case, perhaps the 100 year old could disclaim their interest if that would result in a large age drop to the next oldest trust beneficiary.
The first thing is to secure written options from the plan regarding the RMDs and a copy of the beneficiary statement so all these variables can be pulled together.
Permalink Submitted by Scott H on Tue, 2008-01-22 21:38
I just fought with TIAA and another university on this very subject. Stick to your guns, in the end I had to write a letter to TIAA Beneficiary services requesting they follow the Pension Protection Act of 2006, which they eventually agreed to in my case……….as a caveat, I had to keep the assets with TIAA, but I had minor children involved, so maybe that is why…………….
It DOES matter how the plan participant named the benfeciaries………………..if the trust was named,I think you are out of luck doing a lot of stretching………..
Permalink Submitted by Brent Steiner on Tue, 2008-01-22 22:18
Just got off the phone with TIAA – several things which didnt seem to jive –
The 403(b) beneficiary designation form said that the Trust is beneficiary – TIAA says that with an indemnity waiver from the Trustee of the Trust – instead of paying out to the trust – they are willing to open accounts with each of the beneficiaries – splitting the assets up according to how the trust would have split the assets – but in inherited 403(b) accounts (not beneficiary IRA’s)
The Michigan state plan was never amended to allow beneficiary IRA’s (TIAA says they have been after them to modify plan provisions) At this point TIAA is willing to open inherited 403(b) accounts that (according to TIAA) can be stretched based on each individual life expectancy
Can they actually pay out to beneficiaries instead of the trust if the trustee says “ok”?
Is an inherited 403(b) subject to the same types of rules as an inherited IRA? Does the 5 year rule come into play at all?
Once the inherited 403(b) is open – can you do a trustee to trustee transfer of an inherited 403(b) to a new custodian if the client doesnt want it to stay with TIAA Cref?
Permalink Submitted by Alan Spross on Wed, 2008-01-23 04:27
That strikes me as quite risky on TIIA’s part as long as the trust remains valid. If anything goes wrong, a trust beneficiary could bring an action against TIIA and the trustee and the indemnification could be costly.
In any event, opening these separate accounts in no way changes the RMD for trust beneficiaries. The IRS does not care if separate accounts are created, but they do care that the separate account RMD rules which require the oldest trust beneficiary’s life expectancy to be used for qualified trusts would be overlooked. This applies whether the RMD is paid into the trust as intended or into separate accounts.
The 5 year rule is mandatory if the trust is not qualified. But if qualified, then the plan provisions come into play to determine if the stretch is allowed or the 5 year rule still applies, or if an election needs to be made by a certain date to secure life expectancy. But if the oldest beneficiary is 100 years old, that does virtually no good as the balances must be distributed within 3 years instead of 5.
There are new 403b Regs just going into effect at this time which makes these plans more like 401k plans in most ways. I don’t know how difficult it would be to secure a transfer to another inherited 403b platform, particularly since these may not be true separate accounts, but just a subdivision within the original account.