457 to an Inherited Estate IRA
Clients husband passed away 10+ years ago. He was an employee of the town of Telluride here in Colorado and had a 457 that his surviving Spouse recently discovered. Unfortunately husband did not list a beneficiary – or Plan Sponsor (ICMA) cannot locate beneficiary designation possibly due to the time elapsed. Plan Sponsor requested court documentation of Spouse relationship in order to move the 457 assets into the Spouse name. This has been provided.
The assets have now been moved into an account titled as an Inherited Estate IRA – Spouse was told this was necessary step before moving into an IRA in her name.
Today the Plan Sponsor is saying the assets cannot be moved into an IRA in the surviving Spouse name.
Do you know if these 457 assets can be moved to surviving Spouse IRA and can you point me to any resources that will support if these assets can or cannot be moved into an IRA for the surviving Spouse?
Thank you
Permalink Submitted by Alan - IRA critic on Fri, 2016-04-01 22:11
My impression is that although these plans are not subject to ERISA, most of them have specific default beneficiary provisions included, some in favor of the surviving spouse. Has the plan document been examined regarding it’s default beneficiary provisions? Such a provision in favor of a surviving spouse would result in designated beneficiary treatment for the spouse, although the transfer to the estate IRA refutes this. Nonetheless, if the surviving spouse is the sole beneficiary of the estate, the IRS has consistently ruled in favor of a spousal rollover to the spouse’s own IRA account. There are enough of these rulings such that some IRA custodian may agree to accept the spousal rollover without applying for the spouse’s own ruling. These rollover PLRs were just increased substantially in cost so best to avoid a PLR if possible. The plan cannot control what an IRA custodian does, but I guess the plan could refuse a direct rollover, and a distribution to the estate would trigger 20% withholding. Perhaps senior staff at the plan should be consulted to determine if there is a way to get them to do a direct rollover such as providing them with PLR numbers. If the spouse is also the executor of the decedent’s will, that would probably enhance a positive PLR result if it came to that. You indicated that the funds are now in an inherited IRA. If so, the plan no longer has control of the funds?
Permalink Submitted by Steve Booren on Mon, 2016-04-04 13:47
Initially Spouse ws told that yes she can roll the assets into an IRA in her name. As time has gone on we believe the plan administrator made an error by moving the assets to an Estate Beneficiary IRA. We have a conference call today to find out exactly what transpired. We have also requested a copy of the Plan document but so far this has not been provided – will pursue this in call today. – Thank you for your insight, ver helpful.
Permalink Submitted by Bruce Steiner on Mon, 2016-04-04 19:12