403(b) public school teacher passes under age 59.5
A woman public school teacher with a 403(b) passed away. She named her husband as primary beneficiary. Both the deceased 403(b) owner and husband are under 59.5 and they have two children aged 7 and 9. I know the husband could roll his deceased wife’s 403(b) to his IRA but if he does and he needed some money from it prior to age 59.5 that money withdrawn would be subject to the 10% penalty for early withdrawl. Could the husband roll the money instead to an inherited IRA where he could pull the money off prior to age 59.5 without the 10% early withdrawl penalty? If he could roll it to an inherited IRA would he have to take RMD’s or is there a special provision that a spouse does not have to take RMD’s from an inherited IRA until either the deceased spouse or the husband beneficiary would have been subject to normal RMD’s?
Thanks for your help.
Permalink Submitted by Alan Spross on Thu, 2008-02-21 05:42
He should be able to roll it over to an inherited spousal IRA from which he can take penalty free distributions if he wishes, but does not have to take RMDs until the year his wife would have been 70.5. However, it is possible that he might run into some resistance getting the plan administrator to agree to do the transfer because the spousal inherited IRA was established by an IRA letter ruling in 2004, and is not clearly spelled out in the code. If he encounters resistance, he should refer the plan to PLR 2004 50057, but chances are the plan has already made it policy to allow the transfer or not allow it.
The fallback plan would be to roll it over to his own IRA and set up a 72t plan under which any distributions would be penalty free.