3 questions
I’ll start with the scenario then fallow with my questions.
I have a client who has a father who is 87 and has an old 403(b) plan that he started contributing to in 1970. Obviously he is in RMD and the client isn’t sure if she, as primary beneficiary, should keep the money in as a benficial 403(b) or transfer the money to an IRA upon the death of her father. I guess I am far enough removed from the 2 day workshop to have forgotten some key strategies: #1 Can she create a stretch IRA out of the 403(b) in RMD and take distributions over her life expectancy and if not can she create a beneficial IRA and take distributions over his life expectancy and if so is it life expecancy at the time of his death or from the time that RMDs started? #2 If she keeps it an inherited 403(b) how many years does she have to take distributions? #3 what is the diference between an inherited IRA/retirement plan and a beneficial IRA/retirement plan in this scenario.
Sorry if I was to vague. Please Help!!
Joe Ritterhouse
San Antonio, TX
Permalink Submitted by Alan Spross on Thu, 2010-05-06 21:28
Options available when she inherits the 403b:
1) Take life expectancy RMDs from the 403b using her single life expectancy
2) Directly transfer the inherited 403b to an inherited traditional IRA from which she would take the RMDs as above
3) Directly transfer the inherited 403b to an inherited ROTH IRA from which she would take RMDs as above
She cannot assume ownership of these inherited assets, nor can she do an indirect rollover. Any check made payable to her cannot be rolled over to her own IRA because she is a non spouse beneficiary.
In all cases her life expectancy is based on her age that would be attained in the year following the death of her father. For each year thereafter, the divisor that applied in the first year would be reduced by 1.0 for each subsequent year. If her father did not take his RMD in the year of his death, she would need to distribute that RMD.
Generally, it is best to do the transfer to an inherited IRA (Options 2 or 3) rather than leaving the 403 b in place. There are more investment options with an IRA, an opportunity for lower investment costs, and broader options in naming her own successor beneficiary.