403B Transfer to Inherited IRA
My mother is the sole beneficiary of my father’s 403b account that is with MetLife. My dad was a retired college professor/administrator. Metlife is saying that she cannot re-title the account in her name or assume the account (Which TIAA-CREF allowed) and continue payments as is. Instead it must be transferred to an inherited IRA, annuitized or she can take a lump sum. The latter two options are not financially prudent given her situation and desires. So here are my questions
* When is the deadline for taking the RMD? Is it 12/31/12 or 12/31/13 if we transfer it into an IRA in my mom’s name before the end of year? My father had been taking RMD and the last distributed monthly RMD was in September 2012. So the total amount distributed for the year will fall thee months payments short of taking the full RMD for the year based on my dad’s life expectancy.
*Is the non-assumption/non-retitling policy of Metlife for 403B’s the norm?
* If she creates an Inherited IRA and transfers the existing Metlife assets can the RMD be calculated based on her Uniform Life Expectancy (IRS 590 Table III) vs the Single life expectancy (IRS 590 Table 1). Her age is 73 and given her good health and desire to leave assets that can be inherited by my siblings and I, the Uniform Life Expectancy increases the likelihood of that given the higher divisor and the current value of the assets.
Thanks in advance for any assistance/advice.
Permalink Submitted by Alan Spross on Wed, 2012-10-24 19:37
Sorry to hear of your recent loss.
A spousal beneficiary cannot assume ownership of an employer plan. Your mother could roll the death benefit over to her own IRA if she wishes, or to an inherited IRA. The plan is apparently not willing to allow her to leave the plan in place and take distributions as the beneficiary. Since she is 73, she should choose the rollover to her own IRA, and not the beneficiary IRA.
The remaining portion of your dad’s 2012 RMD should be distributed to your mother by the end of 2012. That RMD portion is not eligible to be rolled over to an IRA because an RMD cannot be rolled over. If your mother completes the IRA rollover before year end minus the RMD, her first RMD as owner will be due by 12/31/2013. That Uniform Table RMD will be far less than if she created an inherited IRA, and in addition an inherited IRA would impair the stretch for HER beneficiaries.
You probably misunderstood the TIIA CREF opinion on ownership of the 403b. A spouse cannot assume ownership of a non IRA employer plan, but she should be able to remain as beneficiary in most cases. The final RMD must be made payable to her as the beneficiary and the 1099R for that amount would include her SSN. The plan will have to reflect her beneficiary interest in order to issue that check.
Permalink Submitted by John Vincent on Wed, 2012-10-24 19:57
Alan,
Thanks for the information. Part of the challenge has been that Metlife is requiring a decision on what to do with the assets along with official documentation of death/claim form. TIAA at least separated the two processes which gave us time to think through what to do with the assets after we reported my fathers passing. So if you will indulge me I have two follow up questions.
So based on what you shared, I”m assuming that after a transfer to a new or existing IRA, Metlife would distribute to my mom, the amount that wasn’t transferred that should have been distributed as part of my dad’s RMD for 2012?
Secondly, if she creates an Inherited IRA with a new entity, would she be able to take RMD’s based on the Uniform Table or would she have to use the Single life table? I was a little confused by your response and haven’t been able to find clarity on which one applies in situations like my mom. The Uniform Table would mean her RMD would be less since her age as of 12/31/12 will be 73 and her divisor would be 24.7 for figuring RMD whereas the Single Life Table divisor for her age would be 14.8 which would mean a higher RMD.
Permalink Submitted by Alan Spross on Wed, 2012-10-24 20:32
Yes, they will distribute the remaining RMD either before or after the transfer, but must do so no later than year end. If she is doing an IRA rollover, they would probably distribute the RMD at the same time. The IRS rollover should be done by direct rollover to avoid 20% withholding.
She should not create an inherited IRA, as it is an unnecessarily extra step. With an inherited IRA should would have to use the single life table and her RMDs would be much higher. And if she were to pass with an inherited IRA, her beneficiaries would have to continue her RMD schedule rather than using their own life expectancies.
If she already has a traditional IRA, she can roll the 403b into that same account. This would not affect her IRA RMD for 2012, but her 2013 RMD will be based on the 12/31/2012 IRA balance. She would use the Uniform Table and whatever her age would be on 12/31/2013. Her age this year does not matter unless she had her own IRA before this.