Inherited IRA
TP sole beneficiary of deceased’s 401(a) DC plan. TP was the girlfriend of deceased and wife of deceased challenged beneficiary designation. After 5 years, the account was “awarded” to girlfriend. TP attempted to do a trustee to trustee transfer to an Inherited IRA, but was told by the receiving custodian that she would have to take 5 years of minimum distributions before the funds were rolled into the Inherited IRA. Is this accurate? Deceased died prior to RBD. TP never had access to the funds while it was being challenged by the wife. Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2016-08-24 22:27
What she was told may or may not be accurate, nonetheless it makes sense. The plan provisions determine what is to occur for deaths prior to the RBD and the IRA custodian would not know what these provisions stated. Many plans require the beneficiary to make an election of either LE or 5 year rule no later than 12/31 of the year following the year of death. If no election is made (or could have been made) the plan will specify which rule applies. If the plan is silent on which method, then life expectancy is the default method, and approx 5 years of RMDs would have to be distributed. It is also possible that the plan provisions state that the 5 year rule applies, with no election. Now, if the 5 year rule applies then there is probably no sense in an IRA transfer. So in a way, even though the IRA custodian does not know the plan provision, they are probably assuming that no IRA transfer would be done unless LE RMDs were available. In that case, the plan should distribute all these RMDs and the TP would then file Form 5329 for each year to request a penalty waiver for “reasonable cause”.
Permalink Submitted by Peter Thomann on Wed, 2016-08-24 23:22
Thank you Alan, very helpful.