5 yr rule becomes 6 yr rule? 2006 Inherited 457 Plan
Client’s sister died 11-07-2006. Client is beneficiary of sisters Idaho 457 Plan. Does 5 year rule apply for full distributions? Will 2009 not count making this a 6 year rule?
Client requested a full distribution paid directly to her in early January 2011 thinking she needed to fully distribute in 2011- and about 30% witholding took place. If 6 year rule applies, can she do a 60 day rollover back into the 457 plan, then do a Trustee-to-Trustee transfer into an inherited IRA, thereby eliminating the mandatory witholding. Then fully distribute from the Inherited IRA in 2011 and 2012?
Permalink Submitted by Alan Spross on Sat, 2011-01-15 02:01
5 year rule only applies if employee died prior to the required beginning date. If that is the case, 2009 does not count due to the RMD waiver legislation, so the distribution did not have to be complete until 12/31/2012. But that is a moot issue now.
A non spouse beneficiary cannot roll over any distributions and therefore she is stuck with a taxable distribution including the withheld amount. Of course, the withholding will cover part or perhaps all of the taxes depending on other factors. At least there is no early withdrawal penalty on inherited retirement funds.