Non spousal beneficiary
Kyle’s father passed and has left Kyle a qualified lump sum pension benefit. The pension plan does not offer a direct role over option for non-spousal Beneficiaries. Can Kyle elect the lump sum direct withdrawal option, instruct the pension administrator to withhold the mandatory min fed & state withholdings, then fund an IRA in Kyles name with the gross amount of the pension benefit within 60 days and avoid the taxes and penalties? If so, can he use after tax money to make up the amount of the withholdings into the new IRA in Kyle’s name? Will Kyle be entitled to receive the paid taxes on his next year’s tax return?
Permalink Submitted by Alan Spross on Fri, 2009-07-10 19:55
No, this cannot be done because a non spouse beneficiary cannot roll over any part of a distribution to an inherited IRA.
His best bet is to wait until next year when the direct rollover to an inherited IRA will be mandatory for qualified plans. RMD requirements are affected by the date of his father’s death and his father’s age at death. For calendar year 2009, the RMD requirement has been waived, but for 2010 and beyond Kyle’s RMD will be affected by this information, as well as when the transfer actually is completed.
The withholding question does not apply since they only apply to eligible rollover distributions, and as stated above, any distribution from this plan is not eligible for rollover to either an owned IRA or an inherited IRA.
Permalink Submitted by Al Fry on Fri, 2009-07-10 21:45
Its hard to believe that a plan would be still dragging their feet to allow direct rollovers (trustee-to-trustee tranfers) to inherited IRAs. They now have less than 6 months to comply with the law. This has only been allowed for over 2 1/2 years now.