RMD Non-spouse bene qualified plan ollover to inherited IRA
Ed wrote previously (May, 2007) this was an issue — is it still the same?
— qualified plan participant died in 2009 before reaching rmd age
— non-spouse beneficiary will request direct rollover to inheritied IRA in 2010 (by 12/31)
— non-spouse beneficiary will take distributions over lifetime
— non-spouse beneficiary has an RMD for 2010
My understanding is —
— qualified plan needs to make RMD because it is not eligible to be rolled over
Q — Can we force qualified plan to split payment, one payment to bene for RMD, and one payment directly rolled to inherited IRA?
If no, then
Q — Can we still have all of account balance directly rolled over to inherited IRA,
— take rmd from inheritied IRA by 12/31/2010 (and distribute earnings)
— report the entire rollover value as distribution on bene’s 2010 tax return
— but only report rmd + earnings as taxable portion
Any other/better solutions ???
Thanks — Karen
Permalink Submitted by Alan Spross on Tue, 2010-12-21 02:04
Your understanding is correct, but time is running out here. Under the “special rule” in Notice 2007-7, the non spouse beneficiary can elect life expectancy RMDs EVEN if the plan requires the 5 year rule AS LONG as the distribution is made by the end of the year following employee’s death. Therefore, the taxpayer has 10 days to get this done and preserve life expectancy RMDs if the plan requires the 5 year rule.
Accordingly, if the beneficiary elects life expectancy, that will require the plan to peel out the RMD and pay it separately from the direct rollover because the 5 year rule is taken out of play. But note that the IRA receiving the direct rollover must have the same beneficiary as the plan; otherwise send it to a new inherited TIRA. The plan is required to offer the direct rollover, but only to one receiving account. This means that the RMD is paid to beneficiary and the rest must go to either an inherited TIRA or inherited Roth IRA if the plan does not offer multiple rollovers. For a plan that will not offer dual direct rollovers, the beneficiary must choose between and inherited Roth and inherited TIRA. This can be an issue because a non spouse cannot convert an inherited TIRA, but CAN convert an inherited QRP.
Short answer then to your first question is “Yes”, the split payment is required of the custodian as long as one of them is the RMD per life expectancy election.
If the plan otherwise requires the 5 year rule, acting now is critical because if the plan default is the 5 year rule, then a direct rollover after 2010 will result in the 5 year rule also applying to the receiving IRA and the stretch would be lost.