IRA Rollover from DB Plan

Submitted by Richard Alpert on Mon, 2008-01-28 22:08

I have a situation with 2 spouses who have a DB plan. One spouse (the older one) has just died. The younger spouse is still making contributions to their pension account and both spouses were/are taking RMDs.

Should the younger spouse –

Roll the deceased spouse’s DB plan into an IRA?
If so, what are the advantages?

Or

Can she (as the beneficiary of the deceased spouse’s DB) take the annual RMD from this account according to her life expectancy (e.g. treat it as her own)?

If she does not roll it over to an IRA she has one less account to manage and to take RMD from. So, can she avoid the IRA and what are the pros/cons?

Thanks in advance.



Submitted by Richard Alpert on Mon, 2008-01-28 23:57

I would really appreciate a response from someone that can help.

Thanks!

Submitted by Alan Spross on Tue, 2008-01-29 02:16

If the DB plan can issue an eligible rollover distribution to an IRA owned by the surviving spouse, she would be able to take RMDs at a lower rate because she would be using the Uniform Lifetime Table in Pub 590 with annual recalculation.

There may also be added flexibility in naming her own beneficiary on the IRA account.

Many DB plans would provide a spousal death benefit equal to a set percentage of the owner’s amount, but one would have to know the plan options to compare them to that of an IRA account.

Submitted by Denise Appleby on Tue, 2008-01-29 10:50

So, the best thing for her to do at this point is to review the plan’s [url=http://www.retirementdictionary.com/summaryplandescription.htm%5Dsummary plan description (SPD).[/url]This will explain the distribution options that are available to the beneficiary. Without that, we would just be guessing. Equally as important if the [url=http://www.retirementdictionary.com/Beneficiary-Designation-Form.htm%5Dben… designation form[/url], and distribution waiver/elections if they are separate from the beneficiary form. Since he already started taking distributions, much will depend on whether he was receiving distributions under a [url=http://www.retirementdictionary.com/Qualified-Joint-Survivor-Annuity.htm…, or if he and his wife waived the QJSA requirements.

[b]If she can rollover to an IRA[/b]…In addition to the benefit mentioned by Alan, rolling over the amount to her own IRA would:
• Allow her to self-direct her investments. I am not sure this would be considered much of an advantage when compare to the guaranteed returns under the defined benefit plan, for someone at her age.
• Provide better distribution options for her beneficiaries, as they would be able to use their own life expectancies to calculate distributions for any amount they inherit from her.

Since she is a participant in the plan, it will be easy for her to get a copy of the SPD and distribution elections . Without those, you may give her information that may not apply to her, which may confuse her. With them, you can zero in on the options that apply to her.

Submitted by Richard Alpert on Wed, 2008-01-30 01:41

Thank you for your responses.

“She would be able to take RMDs at a lower rate because she would be using the Uniform Lifetime Table in Pub 590 with annual recalculation.”

Do you mean that she would be able to take RMDs at a lower rate because the DB RMD is based on the annuity paid by the DB after the RBD, which is likely to be larger than the RMD required using the Uniform Lifetime Table with annual recalculation?

“Provide better distribution options for her beneficiaries, as they would be able to use their own life expectancies to calculate distributions for any amount they inherit from her.”

What is the disadvantageous outcome for single/multiple beneficiaries of the DB plan?

Thanks again.

Submitted by Alan Spross on Wed, 2008-01-30 05:05

IF the DB plan is annuitized, the payout will be level and therefore tend to be higher in the earlier years than the IRA RMD but eventually lower, perhaps in her later 80s. However, as Denise indicated, we really do not know exactly what this particular DB plan offers or under what section of the code it was created. We are also not sure if an eligible rollover distribution to her own IRA is even available.

If the rollover to her IRA is available, then she can name her own beneficiaries would then inherit directly from her and be able to use their own life expectancies for RMDs. Again, we do not know what the DB plan provides for successor beneficiaries, but she cannot own the inherited DB plan, therefore options for her beneficiaries could well be more restrictive.

Submitted by Richard Alpert on Wed, 2008-01-30 05:22

Thanks Alan.

“She cannot own the inherited DB plan, therefore options for her beneficiaries could well be more restrictive.”

Doesn’t she have the option to roll the deceased spouse’s plan into her own DB plan? If the plan allows for successor beneficiaries wouldn’t this provide similar flexibility to the IRA?

Submitted by Richard Alpert on Thu, 2008-01-31 21:43

Any chance I can get an answer to these last few questions? I would greatly appreciate it.

“She cannot own the inherited DB plan, therefore options for her beneficiaries could well be more restrictive.”

Doesn’t she have the option to roll the deceased spouse’s plan into her own DB plan? If the plan allows for successor beneficiaries wouldn’t this provide similar flexibility to the IRA?

Can the Uniform Lifetime Table be used to calculate RMDs from a DB plan at age 701/2 or is this prohibted? For example, say that at retirement (e.g. age 701/2 we know the balance of the DB plan. Must an annuity payment be made to comply with the RMD requirement or can an RMD be taken based on the Uniform Lifetime Table and the balance of the DB?

Thanks.

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