403b beneficiay passed away

Submitted by Douglas Bauerband on Thu, 2014-02-06 18:01

My Client lives in Texas. His sister (lived in NC). She passed away back Sept/October 2013 (I think) and named him as her beneficiary on a 403b. He didn’t get the beneficiary forms from the attorney (executor) until beginning of Jan 2014. At that time he entered the hospital due to a broken hip, got a staff infection and passed away in the hospital.

Even though he didn’t get to sign the forms and send back, wouldn’t his wife (who is entitled to all he had in his will) be entitled to the money and be able to put it in an inherited IRA?

Can she sign the 403b forms as his executor to transfer the 403b to an inherited IRA and put her name down as primary beneficiary…then change the name on the inherited IRA to her name?

I know it may be way off base but trying to figure out a way to stop the 403b from going into his estate and paying taxes on the whole amount…its worth about $350,000.

any other ideas or help you can offer, please do.

Thank you,
Douglas



Submitted by Alan - IRA critic on Thu, 2014-02-06 18:52

  1. Only a designated non spouse beneficiary can do a direct rollover to an inherited IRA, but unfortunately he passed before doing the direct rollover. Even if he had completed the rollover and named his spouse as successor beneficiary, she could never have made the inherited IRA her own because she was not the surviving spouse of the plan owner. Once all the death certs are filed and other paperwork required by the plan, typical plan provisions would specify a lump sum payment made to client’s estate.
  2. Note that RMD rules indicate that even though the client passed prior to 9/30 of the following calendar year, he is still considered the designated beneficiary for RMD purposes. That means IRS rules allow the plan to distribute annual RMDs to his estate in the same amount of his RMD, or in the unlikely event the plan accepted assignment from the executor to distribute directly to client’s wife, a lump sum could be avoided. This is unlikely to be allowed by the plan, but as a final tactic perhaps the plan would agree to pay half to the estate this year and the rest in January.


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