Roll Over/Transfer Inherited 403b to another 403b
Situation
Still working mom (72) with 403b at her place of employment is sole spousal beneficiary of dad’s 403b (over 70.5, retired and was taking RMD) with substantial assets. Mom has no other retirement savings vehicle (roth ira, post tax ira account). Lump Sum, Roth IRA and annuitizing are not good options. Current 403b plan does not allow her the option of assuming account or retitling it in her name. It has to be transferred.
I know her best option is to transfer into her own IRA versus creating an “inherited IRA” from scratch.
1. Can the inherited assets of the dad’s 403b be transferred to the mom’s 403b? So does an existing 403b account qualify as an existing IRA for the purposes of taking advantage of transferring to one’s own IRA to stretch out the payments (RMD)?
2. If yes can assets be transferred in then transferred out to an IRA set up elsewhere and still take advantage of stretch IRA? Mom’s current 403b investment options aren’t that great.
My research seems to indicate that my mom’s options for transferring are going to be limited to creating a new Inherited IRA account and transferring the monies into it which will not allow for the stretching of payments. My interpretation of how transferring works is that she would have had to have been an existing IRA (not 403b) in order for a direct transfer to occur which would have allowed stretch payments (RMD)
Thanks in advance for any input/guidance.
Permalink Submitted by Alan Spross on Fri, 2012-10-26 17:00
1) 403b plans observe many IRA rules with respect to RMDs. However, unlike an IRA a sole beneficiary spouse cannot roll an inherited 403b over to her own 403b. However, it’s possible to get that money into her 403b indirectly. First, she would roll the inherited 403b over to her own IRA and then if her 403b plan will accept IRA rollovers she could roll that IRA into her 403b plan.
2) Since you indicated that her 403b plan investment options are not all that great (expenses may also be high), she needs to consider how much longer she will work. If she is allowed to transfer her IRA into her 403b plan, this would eliminate IRA RMDs until she retired. However, this benefit is offset by the higher expenses in the 403b now applying to a much larger amount.
Sounds like a math exercise comparing the tax savings from avoiding RMDs while still working and filing single if all the funds were in her 403b vrs the loss due to higher expenses or inappropriate investments.
To get the funds into her own (not inherited) IRA, she should request a direct rollover to avoid withholding. The remaining portion of Dad’s 2012 RMD would have be distributed and not included in the IRA rollover. She would not have an IRA RMD for 2012, but for 2013 she would if she was not able to roll the IRA into her 403b before year end. Note that her IRA RMDs will be much lower if she owns the IRA vrs having to use the single life table for an inherited IRA. Since both spouses were over 70.5, there are major disadvantages for maintaining an inherited IRA account.
Permalink Submitted by John Vincent on Sat, 2012-10-27 19:45
Thanks. I suspected as much.
So as a point of clarification. As this is the one thing I haven’t been able to find an answer to online.
In order for a spousal beneficiary to be able to transfer “inherited funds” from an account in the deceased name into an IRA in the beneficiaries name and not an “inherited IRA”. One (beneficiary) must already have an existing Traditional IRA account, that pre-dates the death of the original account holder (deceased) death and that Traditional IRA must not be a part of a qualified plan? If not, you have to create an IRA account but it is considered an “Inherited IRA” if it is accepting (being funded) with transferred funds from the original owners (deceased) account and thus the surviving spouse loses out on the benefit of stretch payments with a lower RMD based on the life tables.
The reason I ask is that conversations with potential recipients (companies) of the funds state that an Inherited IRA has to be set up to accept the funds not a traditional IRA.
Permalink Submitted by Alan Spross on Sun, 2012-10-28 02:00
The surviving spouse does not need to have a pre existing TIRA account. They should be allowed by any IRA custodian to open a new owned TIRA account at any time to receive the rollover from the decedent’s plan. It’s been that way for many years.
In PLR 2004-50057, the IRS ruled that the surviving spouse also has the option to roll the death benefit over to an inherited IRA, should they choose to. This is the option that is typically the problem for IRA custodians, not the owned IRA option.
Of course, the surviving spouse could placate the custodian by opening an inherited IRA if they required it, transfer the funds in and then roll over the inherited IRA to an owned IRA. But this is a totally unnecessary and extra step.
Note that an inherited IRA IS a traditional IRA. It is just titled showing the decedent’s name and the beneficiary interest rather than just the beneficiary as the owner. The surviving spouse could establish the inherited IRA and then roll it over to her own IRA the next day, or for that matter at any later date she chose to. For RMD calculation purposes, if she establishes the owned IRA in any year after the year of death, she is treated as if she were the owner the entire year.
Permalink Submitted by John Vincent on Sun, 2012-10-28 18:18
Thanks. That clears up something that I wish would be better clarified online and in pamphlets. So when the Rollover paperwork lists an option as “A new traditional/rollover IRA” one can select that as opposed to “A new traditional inherited IRA”. Thus by setting up a new TIRA vs the IIRA, one can rollover the proceeds and then use the uniform life tables vs the single life for calcuating RMD?
Permalink Submitted by Alan Spross on Sun, 2012-10-28 19:00
Correct.