converting disclaimed 403B to an IRA?

Submitted by mike feltch on Thu, 2016-08-04 19:51

Can a 403B be disclaimed by the lone primary beneficiary, and then have the account be transferred to a new Estate IRA account? If not a direct transfer, can the Estate take a 403B lump sum payment and then the executor establish an Estate IRA within the 60-day period? I am trying to get the $$ to a company which will allow dividing the eventual IRA into multiple separate accounts to satisfy all siblings while avoiding a 2016 tax hit. Thanks for the help



Submitted by Alan - IRA critic on Thu, 2016-08-04 20:36

  • This would not work. If the 403b passes to the estate of the participant, since the estate is not a designated beneficiary, there will be no direct rollover to an inherited IRA. Most likely, the plan will require a lump sum distribution to the estate which will destroy any stretch and expose the entire balance to taxes at a higher than normal rate. There might be a few plans that will allow a limited stretch based on the remaining life expectancy of the participant or the 5 year rule if participant passed prior to the RBD, but this is unlikely. Further, if the lump sum distribution is made, it is not eligible for rollover by anyone but a surviving spouse beneficiary. The plan needed to have contingent beneficiaries named in order for a disclaimer to work.If the plan balance is small enough, you might consider annual gifting of a tax adjusted amount from the current beneficiary, if that beneficiary is willing to stay involved. If the annual amount is less than the 14k gift exclusion there would be no gift taxes, but the income taxes would all be paid at the current beneficiary’s marginal rate and the gifts would be tax free to the others. The stretch is preserved, but based on the current beneficiary’s life expectancy. It might also be possible to make adjustments to other portions of the estate to arrive at a solution, but the higher the amount that needs adjustment and the more beneficiaries there are, the more pitfalls will be faced if the inheritance is to be “equitably equalized”. 

Submitted by mike feltch on Fri, 2016-08-05 17:22

Thanks for the quick and concise reply.

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