Bene 401k for spouse to bene ira/roth
Can a spouse beneficiary rollover a spouse’s 401k plan into a inherited IRA or inherited Roth IRA? There is a ruling and a PLR that seems to clearly say yes, but the IRS pub seems to say no. Thoughts?
Can a spouse beneficiary rollover a spouse’s 401k plan into a inherited IRA or inherited Roth IRA? There is a ruling and a PLR that seems to clearly say yes, but the IRS pub seems to say no. Thoughts?
Permalink Submitted by mk foss on Wed, 2010-07-21 23:55
A nonspouse beneficiary can roll an inherited 401k plan into a Roth IRA but an inherited IRA cannot be converted to Roth.
A spouse beneficiary is in a better spot. Once a 401k plan or an IRA is rolled to an IRA for the surviving spouse, it is treated as the spouse’s own account and can be converted to Roth.
The question has been whether a spouse-beneficiary under age 59.5 can roll an inherited 401k to an inherited IRA so that withdrawals are not subject to a 10% penalty. The 2006 Pension Protection Act cleared the issue up for nonspouse beneficiaries. The IRS has issued PLRs allowing a spouse beneficiary to do it but I don’t find it specifically in the tax law.
Permalink Submitted by Alan Spross on Thu, 2010-07-22 00:07
Copied below is from Notice 2008-30 regarding the inherited spousal Roth option:
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Q-7. Can beneficiaries make qualified rollover contributions to Roth IRAs?
A-7. Yes. In the case of a distribution from an eligible retirement plan other than
a Roth IRA, the MAGI and filing status of the beneficiary are used to determine eligibility
to make a qualified rollover contribution to a Roth IRA. Pursuant to § 402(c)(11), a plan
may but is not required to permit rollovers by nonspouse beneficiaries and a rollover by
a nonspouse beneficiary must be made by a direct trustee-to-trustee transfer. A
nonspouse beneficiary that is ineligible to make a qualified rollover contribution to a
Roth IRA may recharacterize the contribution pursuant to § 408A(d)(6). A surviving
spouse who makes a rollover to a Roth IRA may elect either to treat the Roth IRA as his
or her own or to establish the Roth IRA in the name of the decedent with the surviving
spouse as the beneficiary. (See Notice 2007-7, Q&A-13, for a rule on how to title a
beneficiary IRA.) A nonspouse beneficiary cannot elect to treat the Roth IRA as his or
her own. (See Notice 2007-7, Part V.)
In the case of a rollover where the beneficiary does not treat the Roth IRA as his
or her own, required minimum distributions from the Roth IRA are determined in
accordance with Notice 2007-7, Q&As -17, -18 and -19.
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This is still a conversion, so if survivor is under 59.5, they could tap the inherited Roth tax and penalty free. Ordering rules would be separate from those of any owned Roth IRAs. Special 2010 conversion rules allowing 2 year tax deferral would apply as well as recharacterization options.
It is correct that Pub 590 does not cover this subject well for spousal beneficiaries.