CONFUSED NON-SPOUSAL 401K BENEFICIARY
Hope someone can help me. In January 05 my brother (age 43) passed
away,I along with my sister where his deignated beneficiaries of his 401K.
In 2005 the plan administrator of the 401k opened two seperate accounts
one for me and one for my sister.The only option for any kind of stretch
we had was under the 5 year rule.I withdrew money from my account as
follows,05=12k,06=5k,07=0,08=nothing as of yet.
In Oct 08 I called my brothers old employer and the plan administrator and they told me that thier policy had changed and that they now allow non spousal 401k beneficiaries to roll over the account into an inherited
ira,and that I could do so if I wished.
What I’m confused about is that my understanding of non spousal ira’s
rollovers by reading Ed Slott’s news releases and discussion forum is that the inherited ira must be opened and money rolled over by Dec 31 the year after the death which would make the dead line 12/31/06.So I cannot do a non spousal 401k rollover.PLEASE HELP.
Permalink Submitted by Alan Spross on Mon, 2008-11-03 03:33
It is correct that you cannot get the benefit of the rollover (actually the transfer), even though the plan now allows the transfer.
Following is a link to Notice 2007-7. If you scroll down to Sec 829, and Q&A # 17, you will see that if the transfer is not done by the end of the year after death, the inherited IRA must adhere to the RMD requirement of the employer plan. If that is the 5 year rule, you would not escape the 5 year rule. If the plan allows life expectancy, you should be able to restore the life expectancy method by making up any missing RMD amounts as far back as 2006, and paying the excess accumulation penalty for 2006 and 2007. Since Sec 829 did not allow for non spouse inherited IRA tranfers until 2007, there is no way that you could have executed it before the end of 2006. The Notice attached was a major disappointment to people in your situation who were expecting relief when the PPA provision was passed.
http://benefitslink.com/IRS/notice2007-7.pdf