PPA of 2006
My client inherited a 403b account from his mother. She died in 2006. In 2006 the account was settled to an inherited 403b for the son. Now my client would like to have this account transferred to an inherited IRA in his name. The service area for his company says that since it was already settled to an inherited 403b it cannot be settled again to an inherited IRA. I though this was one of the provisions of the PPA ’06, to allow beneficiaries the choice to transfer these accounts to their own nonspouse inherited IRA?
Permalink Submitted by Alan Spross on Thu, 2007-10-18 01:01
Unfortuneately, the transfer to an inherited IRA is optional for plan custodians of the 403b or other plans until 2008, but the IRS has just ruled that it will be mandatory for plan years starting with 1/1/08. The problem is that this is one year too late for your client because he must get the transfer done prior to 12/31/07 in order for him to use his own life expectancy in the inherited IRA. If the 403b is not offering a stretch for him, he can cite the latest IRS ruling, but since it does not technically affect the current plan year, he does not have any real leverage with the plan administrator. And if he waits until next year, according to IRS Notice 2007-7, the IRA must adopt the 403b plan distribution provisions, which typically would be the 5 year rule for owners passing prior to their RBD. This is all a sad case of an adverse ruling and bad timing.
Permalink Submitted by Denise Appleby on Thu, 2007-10-18 08:54
He may get lucky. I review a few 403(b) agreements a few weeks ago, and they all had the life-expectancy (stretch) payout as the default option.