non-spousal IRA beneficiary stretch-out
My understanding is that a few years ago the IRS made it mandatory that a non-spousal IRA beneficiary can choose the stretch-out option. I am looking for the language from the IRS that requires this option be provided — the Notice number, Ruling number, or wherever else it may be. In addition, I’d like to know the date this was made official.
Permalink Submitted by Alan Spross on Tue, 2009-04-21 22:04
Unfortuneately, there is no such ruling. The 2002 IRS RMD rules established default RMD provisions, rules that essentially allowed RMDs to be made at lower distribution rates than before. However, there is no requirement that IRA custodians cannot adopt more restrictive terms regarding distribution rates than what the IRS allows. The source for this conclusion is found in Sec 4.2 of the att’d IRS ruling, ie. “except as provided in the IRA adoption agreement”:
http://www.unclefed.com/Tax-Bulls/2002/rp02-29.pdf
Permalink Submitted by Al Fry on Tue, 2009-04-21 22:30
However, the bene should have the option to have it transferred to a custodian that does allow the stretch-out.
Permalink Submitted by Joseph Arsenault on Wed, 2009-04-22 22:24
Megan,
What you referring to is how the 2006 PPA made it [b]”possible”[/b] for qualified plans like 401(k)s to perform direct rollovers for non-spouse beneficiaries. The only problem is that this was not made mandatory until the 2008 WRERA. Starting in 2010, it will be mandatory that non-spouse beneficiaries to receive the option of performing a direct rollover to an inherited IRA. Whether or not that IRA allows for a “stretch” is still up to the custodian / trustee. Choose a custodian that allows for the stretch of RMDs.
Again, my understanding is that this has to do with qualified plans who have non-spouse beneficiaries. Some people have wrongly concluded that 401ks are required to offer stretch options for beneficiaries and this is not the case.
Permalink Submitted by Al Fry on Thu, 2009-04-23 00:22
Thought this was an IRA.
Permalink Submitted by Joseph Arsenault on Thu, 2009-04-23 00:57
I dont see where she specifically references an IRA.. She asked a general question with the language of “mandatory stretch out for non-spouse beneficiaries”.. The scenario I mentioned is the only one I have seen that fits, and other people have asked because of that situation.
Permalink Submitted by Al Fry on Thu, 2009-04-23 01:22
IRA was in Topic line; perhaps she’ll clear it up.
Permalink Submitted by [email protected] on Thu, 2009-04-23 15:04
Yes, I was asking specifically about an IRA being inherited, not an employer plan.
Thanks for asking for clarification — I didn’t realize my initial inquiry was worded ambiguously.
Permalink Submitted by Joseph Arsenault on Thu, 2009-04-23 15:49
It was not worded ambiguously, I over looked the title after reading the post. My fault. That being said the only situation that I have heard discussed which sounds the same as what your describing is what I mentioned. Other than that, as Alan and Al said, there is no requirement that an IRA custodian allow beneficiaries to stretch-out distributions.
-J
Permalink Submitted by [email protected] on Thu, 2009-04-23 17:22
Thanks All for your help on this!
Permalink Submitted by Alan Spross on Thu, 2009-04-23 19:12
It is pretty unlikely that an IRA custodian would BOTH deny a stretch AND deny a direct transfer to another custodian. If a custodian did both, it should subject them to quite a bit of negative public pressure, and they probably would lose considerable IRA business. Still, it behooves IRA owners with non spouse beneficiaries to check the agreement to determine what options their beneficiary will have. If they are not appropriate, the owner should consider transfer of the account while still living.