60 Month Installment Rollover to Inherited IRA from Pension?
I have a client who is the beneficiary of his mother’s pension (state of KY government employee). She passed away pre-retirement, pre-70 1/2. His bene options are unique. Actuarial refund of 119k, lump refund of 78k, or 3 pension options (60 month, 120 month, life). The 60 month payment is $7200 per month for a total of $432,000 – much higher than lumps. In the documentation it explicitly says and after having a conference call with him and state of KY retirement, we confirmed that they will do a “rollover” to an inherited IRA for him on either lump option OR the 60 month benefit. Obviously that is intriguing with a total 4-5X the listed lump amounts. My questions are:
1) They call it a rollover to an inherited IRA and report as code G, is this correct?
2) Can an inherited IRA (non spousal) receive funds via 60 monthly installments?
3) How would RMDs be calculated for him as money is moving over from a pension stream?
4) Dont think so but any violation to one rollover per year rule?
Any help on this would be greatly appreciated!
Permalink Submitted by Alan - IRA critic on Tue, 2015-01-06 20:39
Permalink Submitted by John Boardman on Tue, 2015-01-06 22:34
My fear is that the people working with pensions at KY wont knwo the answer. My call with them this morning was not confidence insipring in their ability to know these answers correctly. One question: How or why woudl he take an RMD prior to it coming over? Are you thinking the RMD woudl apply only to what was retained?
Permalink Submitted by John Boardman on Fri, 2015-01-09 14:54
1) Why would an RMD have to come from the pension prior to the 60 installments beginning?2) If thats the case, on what value would it be calculated?
Permalink Submitted by Alan - IRA critic on Fri, 2015-01-09 17:03
Permalink Submitted by John Boardman on Tue, 2015-01-13 13:57
So, should I just call the pension group and ask them if the RMD default is 5 year or lifetime? If they say 5 year, your above response is correct. But, if they state lifetime RMDs are default to the plan, can he just rollover via 60 monthly payments and take lifetime RMDs based on previous year end balance to get maximum stretch on all assets?
Permalink Submitted by Alan - IRA critic on Tue, 2015-01-13 18:47
Yes, I would contact them for clarification, since they have an obligation to define the portion of any distribution that is an RMD, and therefore would be eligible for rollover. Even if they indicate the 5 year rule applies, they need to know that any payment made in the 5th year is not rollover eligible. If LE is indicated, then a small portion of each installment would be an RMD and the rest could be rolled over. If each installment is completely rolled over, excess contributions to the IRA are being created.