Pension lump sum/IRA stretch
Joanne is retiring, is taking her employer provided pension (not a 401K) in a lump sum, and is rolling it to an IRA. Her named neneficiary is her daughter.
Can the daughter, after her mother’s death, use a stretch based on the daughter’s life expectancy?
Permalink Submitted by Al Fry on Thu, 2008-07-31 21:20
The law allows it, be sure the custodian does, as well, so the daughter doesn’t have to transfer it to someone else to get the stretch. Most do, but you never know for sure.
Permalink Submitted by Alan Spross on Fri, 2008-08-01 03:22
I don’t know how the custodian can successfully refuse to recognize the 2002 RMD IRS ruling and incorporation in the IRS Reg 1.408-8 as follows:
Q–1. Is an IRA subject to the distribution rules provided in section 401(a)(9) for qualified plans?
A–1. (a) Yes, an IRA is subject to the required minimum distribution rules provided in section 401(a)(9). In order to satisfy section 401(a)(9) for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2003, the rules of §§1.401(a)(9)–1 through 1.401(a)(9)–9 and 1.401(a)(9)–6 for defined contribution plans must be applied, except as otherwise provided in this section. For example, whether the 5-year rule or the life expectancy rule applies to distributions after death occurring before the IRA owner’s required beginning date is determined in accordance with §1.401(a)(9)–3 and the rules of §1.401(a)(9)–4 apply for purposes of determining an IRA owner’s designated beneficiary. Similarly, the amount of the minimum distribution required for each calendar year from an individual account is determined in accordance with §1.401(a)(9)–5. For purposes of this section, the term IRA means an individual retirement account or annuity described in section 408(a) or (b). The IRA owner is the individual for whom an IRA is originally established by contributions for the benefit of that individual and that individual’s beneficiaries.
(b) For purposes of applying the required minimum distribution rules in §§1.401(a)(9)–1 through 1.401(a)(9)–9 and 1.401(a)(9)–6 for qualified plans, the IRA trustee, custodian, or issuer is treated as the plan administrator, and the IRA owner is substituted for the employee.
These provisions were ordered to be incorporated in IRA contracts by Rev Procedures 2002-10 and 2003-10. If an IRA provider has not done that, I think they could be forced to comply.
Permalink Submitted by Al Fry on Fri, 2008-08-01 15:18
Sometimes its easier to switch than fight.