Thomson Reuters 401K

Submitted by Kenneth Wright on Fri, 2016-11-11 18:33

My late partner of 27 years had a 401K through Thomson Reuters (administrated by Mercer). He named his trust as a beneficiary. I am the sole beneficiary under his trust. We were married in February 2016 and TR is taking the position spousal benefits do not have to be recognized because we were married less than a year. The total trust estate is less than 5 million.

TR will not allow a rollover into an IRA I set up. They are taking the position they have to pay the proceeds to the trust in a lump sum and withhold taxes. The proceeds are substantial and I want to limit any tax consequences.

Any insight into resolution of this issue and my options would be great!

Thanks!



Submitted by Alan - IRA critic on Sat, 2016-11-12 21:36

  • There is indeed a provision in the tax code that allows a plan to adopt the 1 year period after a marriage before the ERISA required spousal beneficiary becomes mandatory. However, it is very unlikely that a large employer with many well paid employees would have plan provisions that require lump sum distributions to trust beneficiaries. The trustee of the trust should make it clear to TR right away that no lump sum is to be distributed to the trust (unless of course the trust indicates such).
  • Regarding the trust, it needs to be determined whether the trust is “qualilfied” for look through treatment or not, and whether the trustee has authority to terminate the trust. Most trusts ARE qualified. In some cases, the IRS has issued letter rulings allowing the surviving spouse trust beneficiary to do an IRA rollover, but these cases are complex and depend on facts and circumstances including a review of all related trust provisions.
  • RMD options are also affected by whether your partner passed PRIOR TO his required beginning date or after. If the trust is qualified, you can be treated as a designated beneficiary for RMD purposes, and could do a direct rollover to an inherited IRA and take RMDs over your single recalculated life expectancy. However, those RMDs would be larger than the RMDs required if you could do a spousal rollover to your own IRA.
  • You should also look into the possibility of utilizing NUA if the plan holds highly appreciated shares of TR or it’s predecessor firms who he may have worked for. In the event that a distribution is required for some reason, NUA provides use of the lower LTCG rates on the appreciation of those shares for the time held in the plan. NUA requires a qualified lump sum distribution of the entire plan balance after a triggering event, which in this case would be the death of your partner.
  • From your post, it appears that you have not been talking to the right rep. Mercer certainly has better trained staff and trust issues are complex and tricky. Not sure if you will need to retain an attorney for discussions with Mercer, but it sounds like there is enough money in the plan to warrant the legal costs to make sure you do not end up with grossly accelerated income taxes caused by a lump sum distribution.

Submitted by Bruce Steiner on Sun, 2016-11-13 02:43

  • What is “his trust?”  He’s dead.
  • What do you mean by being the sole beneficiary?  The balance at your death has to go to (or in further trust for) someone else.
  • There are often ways to get retirement benefits to the spouse (so as to permit a rollover) even where the spouse wasn’t the named beneficiary.  See my article on this in the October 1997 issue of Estate Planning, http://kkwc.com/wp-content/uploads/2015/04/AR20050125164755.pdf , and my article on this subject in the June 2015 issue of Trusts & Estates, http://kkwc.com/wp-content/uploads/2015/08/IRA-Rollovers-Making-this-option-possible.pdf .

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