Twice Inherited 403B Plan

Submitted by Kevin O'Hearn on Thu, 2024-08-08 16:40

Hello,

There is a 403b held with TIAA. The 403b is twice inherited.

 

Mom passed away…..left to her husband…..the husband has now passed and left the assets to his daughter. The funds are in a non-spousal 403b in the daughter’s name. TIAA is saying the assets cannot be rolled to an inherited IRA because there was a rule that passed in 2023 that now disallows twice inherited employer sponsored plans to be rolled over. My questions are:

 

  1. Have you heard of this new rule disallowing these rollovers? TIAA referenced a code PH 7206.

 

  1. In your opinion, can the daughter directly roll the inherited 403b assets into an inherited IRA in her name?

 

Thanks!



Submitted by Alan - IRA critic on Thu, 2024-08-08 17:54

No. Per tax code 402(c)(11)(A), a direct rollover to an inherited IRA can only be done for a designated beneficiary, and a successor beneficiary is not treated as a designated beneficiary. This provision has existed since 2006. This is why non spouse beneficiaries of employer plans should consider doing a direct rollover to an inherited IRA. When a successor beneficiary inherits an inherited IRA, while the RMD rules are the same, having the funds in an IRA eliminate the possibility of an employer plan requiring a total distribution, and provides a choice of custodians.

I don’t know where they came up with 2023 as a year where this was implemented. A successor beneficiary was never allowed a direct rollover, even before 2006.

Submitted by Kevin O'Hearn on Fri, 2024-08-09 11:27

Thank you Alan. If the first bene was the spouse and the spouse treated the 403b as his own, could the daughter then be treated as the first designated beneficiary and roll the assets over?

Submitted by Alan - IRA critic on Fri, 2024-08-09 13:21

This isn’t clear. Even if the plan was able to accept the election for the spouse to be treated as the employee, the just issued Sec 327 proposed Regs do not address this question. The Regs only state that the beneficiary of the surviving spouse would not be able to be treated as an eligible designated beneficiary (EDB) but are silent regarding treatment as a designated beneficiary. If treated as a designated beneficiary, then they should qualify for a direct rollover to an inherited IRA under current rules.

Regarding treatment of the surviving spouse as the employee, there are several contingencies included in the proposed Regs regarding whether the plan owner passed prior to RBD, when they would have reached RMD age, the year they passed, and whether the plan defaulted to the surviving spouse being treated as the owner or if a stated election must be made. Since these proposed Regs were just released a couple weeks ago, it is highly unlikely that the plan would be ready to address them.

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