estate or individual pays less tax on 403b
Client inherited a 403b from his sisters death in Nov. of 2013.
client passed away Jan 2014
Wife of client receives the 403b now and has signed up for 5yr deferral. She was not mentioned on the 403b but since she was the wife and sole inheritor of client, she gets it.
The account is worth 300k
the 403b company said they are sending the checks made out to the estate of client. I said they should go to her and they said fine, we can do it either way.
Question: would it be more tax efficient for the estate to receive the 60k for 5yrs?
or
more tax efficient for the wife to receive the 60k in her name for the 5yrs?
She makes over 40k per year with her SS and RMD’s and income.
Thank you,
Douglas
Permalink Submitted by Alan - IRA critic on Mon, 2014-08-18 22:52
Due to the compressed tax rates of an estate, taxes would be lower if the income was passed through to the wife from the client’s estate or paid directly to the wife from the plan. It is surprising that the plan provisions in this situation allows for spreading distributions out for 5 years instead of a lump sum that would increase the total tax. Did the sister pass prior to her RBD?
Permalink Submitted by Douglas Bauerband on Wed, 2014-08-20 20:51
yes, the sister did not take any RMD out. Her brother just was turning 71 this year, but he passed in Jan of 2014. He did take out rmd from his IRA’s for 2014. Since the wife is now the inheritor, she has to take out about 60k which would cover any RMD that was left for him. so far they are letting her do the 5yr deferral that i asked for and they said they would send a check to her directly instead of he estate if we mentioend that on the claim form. Are we okay with all this or not?
Permalink Submitted by Bruce Steiner on Wed, 2014-08-20 22:15
Can the deceased client’s executor complete the transfer to an inherited IRA?
Permalink Submitted by Douglas Bauerband on Wed, 2014-08-20 22:32
sister passed away Sept 2013…left 403b to brother…He did not know about it until Jan 2014 and never got a chance to fill out the claim forms before he passed in Jan 2014…TIAA CREF says it goes to his estate now and since his wife in the executor, it can go to her. Do you think there is still a way to have the 403b be transferred into an inherited ira for the wife?
Permalink Submitted by Alan - IRA critic on Thu, 2014-08-21 00:44
It’s OK. but unless the plan has a default 5 year rule (instead of life expectancy), her brother is considered the designated beneficiary regardless of his date of death closely following the participant’s. If the plan default is life expectancy or is silent, then the wife will qualify for the life expectancy stretch, the same as what her brother would have had.
Permalink Submitted by Douglas Bauerband on Thu, 2014-08-21 17:14
sorry if i am not getting this, but are you saying we should be able to do the transfer into an inherited ira if they allow it?
Permalink Submitted by Alan - IRA critic on Thu, 2014-08-21 20:10
Well, an inherited IRA is yet another question. The PPA requires a plan to do a direct rollover to an inherited IRA for a designated non spouse beneficiary if the beneficiary requests it, but in this case the beneficiary is now deceased and we have a successor beneficiary instead. Therefore, it appears that such a direct rollover is no longer required of the 403b, and the IRS has not clarified if it can even be done. I doubt that it can be done in this situation. My prior post was referring to a life expectancy stretch directly from the 403b (not from an inherited IRA) IF the 403b plan provisions permit life expectancy. Otherwise, annual distributions as part of the 5 year rule is still far better than a lump sum distribution.