Inherited 403(b)

Submitted by John Vetzer on Wed, 2016-03-23 00:46

Recently inherited a 403(b) as a successor beneficiary. Trying to rollover that 403(b) into an inherited IRA and I’ve run into some problems with doing so. Was told that this rollover was not possible as a successor beneficiary. When I called and asked why, all they could refer me to was this section in the claim forms:

“Non-Spouse Beneficiary Direct Rollover to an Inherited Individual Retirement Account. This
is the only rollover option available if you are the non-spouse beneficiary of the original
participant or the successor beneficiary of a deceased spousal beneficiary.”

I was told that since I am a non-spouse successor beneficiary, that the rollover was impossible and my only two options were to keep the money there or take it out (which would be taxable).

Is this true – are these my only two options? Thank you.



Submitted by Alan - IRA critic on Wed, 2016-03-23 00:59

Yes, those are the only options. The direct rollover is limited to designated beneficiaries only per Notice 2007-7 Q 11 and 12:

Q-11.  Can a qualified plan described in § 401(a) offer a direct rollover of a distribution to a nonspouse beneficiary?    A-11.  Yes.  Under § 402(c)(11), a qualified plan described in § 401(a) can offer a direct rollover of a distribution to a nonspouse beneficiary who is a designated beneficiary within the meaning of § 401(a)(9)(E), provided that the distributed amount satisfies all the requirements to be an eligible rollover distribution other than the requirement that the distribution be made to the participant or the participant’s spouse.  (See § 1.401(a)(9)-4 for rules regarding designated beneficiaries.)  The direct rollover must be made to an IRA established on behalf of the designated beneficiary that will be treated as an inherited IRA pursuant to the provisions of § 402(c)(11).  If a nonspouse beneficiary elects a direct rollover, the amount directly rolled over is not includible in gross income in the year of the distribution.  See § 1.401(a)(31)-1, Q&A-3 and-4, for procedures for making a direct rollover.    Q-12. Can other types of plans offer a direct rollover of a distribution to a nonspouse beneficiary?    A-12.  Yes.  Section 402(c)(11) also applies to annuity plans described in § 403(a) or (b) and to eligible governmental plans under § 457(b).



Submitted by John Vetzer on Wed, 2016-03-23 01:09

Thank you for your speedy reply, Alan!Just so I’m clear, the designated beneficiary from 401(a)(9)(E)”(E)Designated beneficiary.—For purposes of this paragraph, the term “designated beneficiary” means any individual designated as a beneficiary by the employee.” In other words, my grandmother would have named my mother designated beneficiary, since she was the employee – but my mother could not have named a designated beneficiary since she was not the employee? Just want to make sure I’m understanding this correctly. Again, thanks so much for the speedy reply!



Submitted by Alan - IRA critic on Wed, 2016-03-23 02:03

Yes, you have it. Sorry for your loss.Your mother was the designated beneficiary so she could have done a direct rollover to an inherited IRA, but did not. As successor beneficiary you cannot do a rollover. Your RMDs are the same as your mother’s would have been, therefore the divisor that applied to her last year would be reduced by 1.0 for your first year of RMDs. That assumes that she has not elected the 5 year rule instead of life expectancy RMDs.



Submitted by John Vetzer on Wed, 2016-03-23 02:11

Thank you, Alan. You’re fantastic.



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