403(b) rollover into IRA inherited by the estate: doable?
The deceased failed to specify living beneficiaries so both the 403(b) annuity and IRA went to the estate as beneficiary. The deceased was 69.The IRA can become a “John Smith(deceased) fbo John Smith Estate” inherited IRA where the five year rule will apply. Rather than getting a lump sum distribution from the annuity making it completely taxable in 2017, can it be rolled to the inherited IRA and thus get the five year flexibility? I understand that a distribution from the IRA or annuity is income to the estate. The intent would be to pass income of the estate to the beneficiaries of the estate whose marginal tax bracket would mean less tax than the estate would have.
Permalink Submitted by Alan - IRA critic on Sun, 2017-03-19 16:26
A direct rollover to an inherited IRA is not available to an estate beneficiary of a non IRA employer plan. The 403b plan will probably require a lump sum distribution to the estate, but it might be worth checking to see if the 403b plan would be willing to split the distributions over a couple of years. Distributions to the estate can be passed through to the estate beneficiaries and the tax paid by those beneficiaries on their 1040 tax rate. This is done by Form 1041 with K 1 sent to the estate beneficiaries. The inherited IRA on the other hand can be assigned to the estate beneficiaries who can then take inherited IRA distributions over the 5 year rule period.
Permalink Submitted by peter mcloone on Sun, 2017-03-19 17:22
There are two beneficiaries of the estate. Let’s call them John Doe and Jane Doe. Are you saying inherited IRA “John Smith fbo John Smith Estate” can be assigned to “John Smith Estate fbo John Doe” and John Smith Estate fbo Jane Doe”? I understand one needs to be careful on how these are titled.
Permalink Submitted by Alan - IRA critic on Sun, 2017-03-19 19:00
Not exactly. With submission of death Cert, estate EIN etc the IRA custodian should initially retitle the IRA as “Estate of John Smith as beneficiary of John Smith” or similar. Then when the executor is ready to assign the inherited IRA to the estate beneficiaries the IRA will be split into two inherited IRAs titled “John (or Jane) Doe as beneficiary of John Smith” or similar. Individual SSNs will be the new tax IDs. The IRA custodian may require a slightly different title format, but IRS only requires the name of the beneficiary and name of decedent to be listed.https://www.ataxplan.com/bulletin-board/notice-to-executors-and-trustees/