Money Purchase Plan- Estate as Beneficiary
Estate is the beneficiary of a pension plan. The Estate has 3 beneficiaries.
1) Who pays the income taxes on the pension plan money. This is from an employer plan. Dad died, mom was primary beneficiary and she then died. No other beneficiaries on pension money. This is not an IRA
2) If a 1099 R is reported how is it reflected on Form 1041?
3) Are you allowed to roll money into an inherited IRA?
thank you for the help
Permalink Submitted by Alan - IRA critic on Tue, 2016-06-14 18:40
The pension death benefit will be paid to the estate. The estate must report the income, but the taxes on the distribution can be passed from the estate to the beneficiaries of the estate on Form K 1. Each beneficiary must then report their share of the income and pay taxes at their own tax rate on their 1040. The 1099R income is reported on the 1041 as pension income. The proceeds cannot be rolled over once the pension has issued a check to the estate, While difficult, it may be possible to have the executor assign the death benefit before distribution to the estate beneficiaries, but plans ordinarily resist this and rush to push out a lump sum check to the estate.
Permalink Submitted by Susan Levine on Wed, 2016-06-15 17:33
Could you please provide clarification on the following:“The estate must report the income, but the taxes on the distribution can be passed from the estate to the beneficiaries of the estate on Form K 1” Are you saying the estate does not pay any income tax on the lump sum as the estate is passing the payment to the beneficiaries and everything gets passed to the beneficiaries?What happens to tax withholding? How do the beneficiaries get credit for taxes withheld on the check paid to the estate or is there an exemption from tax withholding on distributions paid to an estate?
Permalink Submitted by Alan - IRA critic on Wed, 2016-06-15 20:56
The executor should have declined withholding. Withholding is only mandatory when the distribution is eligible for rollover, and distributions to other than spouses are not. There is a way to recover the withholding, probably using the 1041 the estate must file, and then the estate can eventually refund the withholding to the beneficiaries.