Inherited IRA/QP
Facts:
Client dies in 2009 with a 401(k) and DB plan with Company
Surviving Spouse is 100% primary beneficiary of 401(k) and DB plan
Surviving Spouse is under 59 ½
Surviving Spouse does not need the $ prior to 59 ½ but would like some flexibility for potential draw if needed or for maximizing lower tax brackets
Question(s):
1. Can the Surviving Spouse create an Inherited Qualified Plan Account (or Inherited IRA) and keep $x amount available for withdrawal without the 10% penalty but subject to minimum distributions?
2. Can the Surviving Spouse rollover the remaining balance into a Spousal QP account or Spousal IRA?
3. If an Inherited QP account (or Inherited IRA) is established, can the surviving spouse rollover the residual balance (ex the minimum distribution for that calendar year) into the Spousal IRA at any time?
Permalink Submitted by Joseph Arsenault on Wed, 2009-12-02 21:27
1) Yes, the spouse could create an inherited IRA and move the desired money there and take RMDs, or maybe even the QRP would allow her to keep some of the money in the plan.
2) Yes, the spouse can roll the remaining amount into her own IRA, defering RMDs on this portion but reapplying the 10% penalty
3) Yes, the residual balance can be rolled over at any time to her own IRA. You are correct about the RMD that year not being eligible for a rollover.
-J
Permalink Submitted by Edward Czapor on Wed, 2009-12-02 22:29
If client was under age 701/2, then no RMD’s would be required by surviving spouse from an inheritrd IRA until client would have reached age 701/2. Withdrawals could be made penalty free as desired within that time frame.
Permalink Submitted by Alan Spross on Wed, 2009-12-02 23:33
If there is any potential NUA benefit in the inherited 401k, the surviving spouse needs to know that either an IRA rollover or taking RMDs or other distributions from the plan in a year prior to the year of the LSD will negate the NUA potential, so this is another factor that needs to be considered in dealing with the inherited plans.