IRC Section 457(b) Plan with Estate as Beneficiary

Submitted by William Dorriety on Wed, 2014-07-02 16:10

I have a new client that is a beneficiary of his sister’s estate. She passed away in Feb. 2014, age 62. She designated her estate as the beneficiary IRC Section 457(b) plan assets ($257,000 in value). Even though a 457(b) plan can be “rolled-over” into an IRA, my client’s CPA stated that the assets are fully taxable in 2014 because an estate has NO life expectancy. Is there a possibility that this can be “stretched” in some manner to soften the tax liability blow?



Submitted by mk foss on Wed, 2014-07-02 18:50

When the estate is the beneficiary of a qualified plan and the participant dies before age 70.5, the 5-year rule comes into play. That’s because the estate has no life expectancy. The account will need to be fully distributed by 12/31/2019 but the estate can assign the benefit to the client and he can spread his distributions any way he chooses as long as everything is gone by the end of the 5th year.

Submitted by William Dorriety on Thu, 2014-07-03 19:22

Thank You!

Submitted by Alan - IRA critic on Wed, 2014-07-02 19:52

The plan administrator may push to have the entire balance paid to the estate, but this needs to be resisted to take advantage of the limited 5 year (often 6 calendar years) period to spread out taxation of the death benefits.

Add new comment

Log in or register to post comments