PPA 2006 – Non spouse rollover to beneficial IRA
PPA 2006 was passed 8/17/2006. 401k participant died in Dec 2005. Participant named college age children as beneficiaries.
Does the beneficiary have the abiliy to transfer to a beneficial IRA if the death occured prior to the passage of the law?
What is the effective date of this provision of PPA 2006?
Does the beneficiary have the ability to transfer to a beneficial IRA if the beneficiary died before the effective date?
Permalink Submitted by Al Fry on Tue, 2008-07-15 23:14
Even though the law was not effective until 2007, some of these were done with people dying prior to 2006. I knew a few cases where plans were amended in late 2006 to allow a death RMD to come out of the QRP by 12/31/06, then the plan was transferred (direct rollover) to a bene IRA in 2007. For the most part, however the effective date was for participants that died in 2006 or later. Many plans now allow this, as they do not have to be amended until 1/1/09. It is still optional, however I have not had any that would refuse to allow it. Not sure what you mean if a bene could do it after they were dead.
Permalink Submitted by Alan Spross on Wed, 2008-07-16 04:40
Note that per Notice 2007-7, any plan that requires the 5 year rule due to employee passing prior to his RBD will result in the 5 year rule still applying to the inherited IRA if the transfer is made beyond the end of the year following death.
Since no transfer was allowable until 2007, there is no way a beneficiary due to employee’s death prior to 2006 would escape the 5 year rule since the IRA would acquire the plan’s rule. Following is copied from 2007-7:
>>>>>>>
(2) Special rule. If, under paragraph (b) or (c) of Q&A-4 of § 1.401(a)(9)-3, the
5-year rule applies, the nonspouse designated beneficiary may determine the required
minimum distribution under the plan using the life expectancy rule in the case of a
distribution made prior to the end of the year following the year of death. However, in
order to use this rule, the required minimum distributions under the IRA to which the
direct rollover is made must be determined under the life expectancy rule using the
same designated beneficiary.
>>>>>>> >>>>>>>>>>.
Therefore, in the most acute situations of avoiding the 5 year rule, there is no help for beneficiaries of pre 2006 deaths under the IRS ruling. The ruling negated much of the expected benefit of the PPA initiated non spouse transfer.
Permalink Submitted by Al Fry on Wed, 2008-07-16 21:49
I should have stated that the few plans I knew about that were amended in 2006 were amended to allow a lifetime stretch-out for benes. So the inherited IRA that was the assets were transferred to in 2007 was following the terms of the QRP.