Citing for BDA for spouse from employer plan
I have 2 under 59-1/2 spouses. One dies.
The large mutual fund complex where we wish to create a BDA for the surviving spouse will let a non-spouse create a BDA but their policy is not to allow a spouse the same privelege of creating a BDA. They say that the “rules” (PPA 2006 and subsequent legislation) allow non-spouse to directly transfer to a BDA but the “rules” don’t cover spouses. They have a convuluted work around of creating an IRA for the deceased and then internally making a claim and transferring the account to the BDA for the surviving spouse. This only works if the employer plan will write a check to transfer a deceased persons IRA from their plan to an IRA.
I’ve seen this written about and seen ruling after ruling that the IRS bends over backward to accommodate a spouse in IRA situations so cannot understand how they can interpret rules this way and deny a spouse the same privelege of a BDA from an employer plan.
Can anyone offer written citation that shows the law/rules/IRS allows spouses to directly transfer from an employer plan into a BDA? Or where I can find that this is allowed.
Permalink Submitted by Alan Spross on Wed, 2009-08-12 22:24
Technically they have a point because the spousal transfer to a BDA was allowed by the IRS in PLR 2004 50057, but for some unknown reason this was never made part of the tax code. There was expectation that the technical corrections act for the PPA would include specific provisions so that spousal options would be at least as broad as those for non spouses, since the PPA resulted in non spouse beneficiaries having access to a BDA via transfer from a QRP while a surviving spouse was limited to assuming ownership via spousal rollover. However, the code provision was never addressed.
Meanwhile, most IRA custodians have agreed to establish BDA accounts based on the letter ruling, but apparently there are some plans that are not going along with the transfer or using various work arounds.
In summary, there is no specific cite that allows this, notwithstanding the fact that there has been no IRS challenge to those custodians who have proceeded to set up a spousal BDA IRA or to QRP administrators that have cooperated with such a transfer.
The alternative of assuming ownership of the plan via IRA rollover and then setting up a 72t plan to avoid the early withdrawal penalty is workable, but exposes the survivor to the heavy cost of busting a 72t plan somewhere during the plan term.
Permalink Submitted by [email protected] on Thu, 2009-08-13 13:00
Thank you Alan, I can always count on your responses to be concise and cover the point