NYC School District TDA
Upon the death of a retired participant in a Tax Deferred Annuity taking RMD ( age 70 1/2), can the beneficiaries of the plan change custodians and establish IRA’s in the name of the decedent f/b/o the plan beneficiaries in order to stretch the distributions over the life expectancies of the beneficiaries. The plan beneficiaries are designated beneficiaries. Transfers wil be direct custodian to custodian. The decedent is a retired teacher from the NYC school system. Will this also depend upon the flexibility of the school system plan as to whether this is permitted or not.
Permalink Submitted by Alan Spross on Wed, 2009-06-24 22:03
The direct transfer to an IRA (including a Roth IRA) for non spouse beneficiaries is a requirement for plan years starting after 12/31/09 per WRERA. For most this means January, 2010. Since the employee passed after the RBD, the transfer getting done by the end of the year following death is not quite as critical, since the 5 year rule is not a possibility. However, if not done in time, the life expectancy of the oldest beneficiary would apply instead of those of each respective beneficiary. The plan is not allowed to transfer any RMDs that should have been taken but were not, including those of the year of death.
Since this is a requirement, the particular plan sponsor should have no valid resistance to doing the direct transfer.
Permalink Submitted by Tony L D'Arminio on Wed, 2009-06-24 22:45
Thank you Alan. My client passed this month and I’m sure the direct transfers can be accomplished within the next several months. So this is accomplished with a TDA no differently than with a company plan. The funds will be transferred directly, re-naming the accounts “John Doe, decedent, IRA f/b/o (named beneficiary). If we establish (2) separate IRA’s, one for each beneficiary, can each use their own life expectancy.
Permalink Submitted by Alan Spross on Wed, 2009-06-24 23:22
Yes, they can each use their own life expectancies for RMDs from the inherited IRA accounts if they are distributed before 12/31/2010. But the transfer is not mandatory until next year, so the transfer might be declined until 2010. The client’s 2009 RMD has been waived, but if the transfer cannot be done until 2010, the plan will have to hold back the 2010 RMD from the transfer using the oldest of the beneficiary ages. But once in individual inherited IRAs, they can each use thier own life expectancies.
Permalink Submitted by Alan Spross on Thu, 2009-06-25 00:13
Let me post a correction about the separate accounts if created under the TDA (which I assume is under Sec 403a or 403b). If such separate accounts are created by the plan in 2009, it appears per the following link to the Regs. that the RMD for 2010 held back by the plan could still reflect each beneficiary’s age rather than the age of the oldest:
http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A…
Permalink Submitted by Tony L D'Arminio on Thu, 2009-06-25 01:12
Thanks again Alan. I will review the link to the regs.