NYCTRS TDA Irrev Trust Named as Beneficiary – Rollover Possible?
Recently deceased retired NYC teacher left her TDA to a grandchild via an irrevocable trust under her will which is being probated in Florida. TRS will not do a rollover distribution, and will only issue a lump sum payment to the trust. That disallows permissible [Secure Act limited] stretch, and with trusts at the highest rate of 13K, also does not allow payment over time for tax minimization. Is it permissible to take the lump sum received by the trust and then roll over the funds to an inherited IRA? I know the trust will have to replace the 20% withheld by TRS with other funds to be able to rollover the full distribution amount. I am thinking this is okay if the trust qualifies for look through. The trust is irrevocable, with only one named and identifiable beneficiary. Thanks for your insights.
Permalink Submitted by Alan - IRA critic on Thu, 2023-04-20 13:27
How was the beneficiary stated on the plan? Was the trust under will specifically listed? If so, and the trust otherwise qualifies, the trust should be allowed to receive distributions per the RMD rules for qualified trust. Did the participant pass prior to RBD? In any event, no 60 day rollover is possible, therefore until these questions are answered distributions to trust should be resisted. TRS seems to be treating this trust as non qualified so far.
Permalink Submitted by Steven Kaplan on Thu, 2023-04-20 14:13
TRS has the beneficiary as Trust FBO XX Under the Will of YY Dated XYZ. And a copy of the will was sent to TRS at the time the beneficiary designation was made. Deceased was 80 and had been receiving RMD’s each year. The 2023 RMD was not yet made and that is understood to require withdrawal. The distribution with NYC TRS has to be applied for so that won’t be any mistakes in the interim. It seems TRS as a matter of practice won’t rollover to a trust or estate, and insists on making a lump sum distribution with 20% withholding. I think I have a qualifed trust since it is irrevocable with a single clearly identified beneficiary of the trust.
Permalink Submitted by Alan - IRA critic on Fri, 2023-04-21 00:27
They seem to be treating this trust as non qualified for some reason. The designation is proper for naming a testamentary trust as a plan beneficiary. The pension’s website indicates that direct rollovers to inherited IRAs are allowed, so the only explanation for the lump sum indication is that the plan is not treating the trust as qualified for look through. If not qualified, IRS rules do not allow direct rollovers to inherited IRAs. Of course, prior to such a direct rollover the 2023 year of death RMD must be distributed to the trust. Suggest that the issue of qualified trusts being eligible for direct rollover be presented to senior plan staff.