457 Top Hat

Submitted by Stephen Peiffer on Wed, 2023-04-26 01:37

457 Top Hat Ptp was receiving RMDs and passed away in year 2016 at age 86 and payments were stopped. Account was dormant until found late in year 2021. There were no beneficiaries listed and funds were paid to the Ptps estate with no taxes paid/withheld. An extension has been filed for year 2022 Taxes. Questions: What are the ramifications of what transpired? There are no records to verify what were the year-end balances after year 2015. Do missed RMD payments need to be taken ASAP and if so, what amounts should be taken? There are 3 beneficiaries of the estate. Who is responsible to pay the taxes, estate or beneficiaries? Is it too late to have funds placed into Inherited IRAs for each beneficiary? What rules need to be followed; Pre-Secure Act? This info is what has been stated to me. Hoping to see actual documents to verify. Any thoughts/comments? Thanks.



Submitted by Alan - IRA critic on Wed, 2023-04-26 15:12

  • Top  Hat plans are subject to RMDs and subject to penalties if those RMDs are not distributed, therefore there must be some reason that RMDs were terminated. Perhaps the executor failed to provide the estate EIN to the plan. The estate will now have to request the applicable year end balances from the plan to determine what those RMDs should have been (except 2020) to properly file Form 5329 for each year to request that the penalties be waived. The lump sum distribution has made up the late RMDs which now allows those 5329 forms to be filed by the estate.  The estate will have to be re opened to handle these requirements, and it is fortunate that the plan balance did not escheat to the state due to inactivity. Apparently, the plan was made aware of the participant’s passing, so there should have been correspondence sent to either the participant or the estate.
  • The estate should be able to pass the distribution through to the estate beneficiaries after the penalty waiver has been approved, and specific approval should be requested from the IRS, as the IRS often does not respond to the waiver request. The beneficiaries will owe tax on the K-1 income.
  • Top hat plans are never eligible for rollover to an IRA or inherited IRA, so while the beneficiaries will receive funds, they will also owe taxes on what they receive. The beneficiaries will have to amend their 2022 returns as the estate probably received a 1099R for 2022 that must be reported. The executor or appointed PR will need to supply the remaining details and do the discovery work.

Submitted by Stephen Peiffer on Wed, 2023-04-26 17:34

Thank you for your thoughts/insight.

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