Spousal rollover when no beneficiary designated
I have a client whose husband died and left no benef. listed on his TIAA-Cref 403B. She is sole benef of his estate thru the will. TIAA allowed her to roll direct 50% of balance to her IRA, the other 50% they said had to be paid to the estate, since the estate is TIAA’s default benef. They sent her the check, payable to the estate with the 20% fed withheld. My question is can that portion as well as the 20% be put in her IRA as a 60 day rollover? Or is she stuck having to report it in the year she recieved the check? The estate has not been settled yet. He was 62 at death and died 5/9/2010, she is currently 53 and is remarried.
Permalink Submitted by Alan Spross on Wed, 2011-12-14 19:34
It would be interesting to know if the 403b is an ERISA plan, and client’s legal relationship to the decedent on the date of death, since the 50-50 split between client and estate is odd. It almost sounds like they were divorced before his death and she secured a QDRO for 50%.
In any event, there are many letter rulings allowing a sole spousal beneficiary under a will to complete a rollover to their own IRA. The 20% withholding indicates that the plan is treating this as an eligible rollover distribution as well. But she would have to come up with the withheld amount to complete the rollover and find an IRA custodian that would agree to accept the rollover based on consistent IRS letter rulings. If this process cannot be completed within 60 days, then she can file a PLR request with the IRS to extend the 60 day rollover period, which the IRS does in most cases like this. It would have been easier if TIIA CREF had not issued the check. Did the executor request it?
Permalink Submitted by mk foss on Wed, 2011-12-14 19:48
I agree with Alan. Did the individual’s live in a community property state? That would explain why there was no difficulty with 50% of the benefit.
Private letter rulings have allowed a spousal rollover when the surviving spouse was both the executor and beneficiary of the estate. Some custodians will treat the distribution as a rollover (when received) if the individual can find a PLR with similar facts and is willing to sign a “hold harmless” letter. The 20% withheld tax would need to be restored. I have seen instances in this forum where individuals have had some difficulty with TIAA-CREF but I believe those instances were difficulty obtaining funds rather than having them issue a check prematurely.
Has the check been cashed? Sometimes all it takes is to ask for each person’s supervisor when dealing with a custodian until you reach a level where they understand the issues and can resolve them. It’s not good when a custodian is listed in this forum as one that is difficult to deal with.
Permalink Submitted by Bruce Steiner on Thu, 2011-12-15 04:00
She should be able to roll it over. See my article on this subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf .
Permalink Submitted by Alan Chandler on Fri, 2011-12-16 15:14
Thanks for all the input. To clarify, they were married at time of his death and she has been since remarried as widow, and they lived in NY which is not a community property state. I believe the plan was an ERISA plan with all/mostly Employer conributions. The client still has the check in hand and is waiting for me to respond to her. I also agree that I probably shouldn’t have mentioned the custodian’s name. I certainly did not want to put them in any bad light, I believe they were simply carrying out instructions from their default agreement.
Permalink Submitted by Alan Spross on Fri, 2011-12-16 18:18
With the updated info, it remains unclear why the 50-50 split.
With an ERISA plan, the spouse married at least one year at the time of death is the defacto beneficiary under the plan. Usually, the one year waiting period does not even apply. If the plan was subject to those provisions it would override the estate beneficiary which would be the default if the employee was single at the time of death. This is the obvious question to be directed at the plan, ie why was the direct rollover not for 100% of the plan balance. And if this provision does not apply to the plan, what characteristic of the plan exempts it?