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Distributions upon death of deceased 403(b) participant


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Need help. We have a client that was a participant in a 403(b) annuity. She is now deceased. She had already begun receiving minimum distributions. Her two children are named beneficiaries.

After reviewing the regs, it appears that you treat the 403(b) the same as an IRA for RMD purposes and that the beneficiaries can roll the proceeds into a 403(b) or IRA in their name f/b/o deceased participant. The beneficiary would continue taking minimum distributions based on their own life expectancies. Is this correct?

The insurance company maintaining the 403(b) has indicated that the proceeds may not be rolled over. They have indicated the funds must stay with them, but can be paid out to the beneficiaries based on their life expectance.

Is it true that the beneficiaries can not transfer or roll the 403(b) to another vendor? Perhaps I am missing something.

Thank you.

QPA, QKA

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Guest Peaceandhope

The insurance company, in its desire to retain assets under management, is in violation of Federal Law. A non-spouse beneficary may rollover the amount to his/her own "stretch IRA" and commence distributions based on his/her personal life expectancy. Hopefully, someone else will cite the IRS ruling in this matter.

Peace,

Joel L. Frank

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What federal law are you referring to? Neither the IRC or ERISA require that any form of payment other than a J & S annuity must be offerred to a married participant as the normal form in a pension plan. There is no rollover right, only the option to make a tax free rollover if the plan permits a LS.

Second under IRC 403(b)(8)(B), only spouses are permitted to rollover a decedent's 403(b) distribution to an IRA.

MZ- The answer is that the payments to the children is governed by the terms of the 403(b) annuity contract which does not have to provide a lump sum after the payments commence.

mjb

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What federal law are you referring to? Neither the IRC or ERISA require that any form of payment other than a J & S annuity must be offerred to a married participant as the normal form in a pension plan. There is no rollover right, only the option to make a tax free rollover if the plan permits a LS.

Second under IRC 403(b)(8)(B), only spouses are permitted to rollover a decedent's 403(b) distribution to an IRA.

MZ- The answer is that the payments to the children is governed by the terms of the 403(b) annuity contract which does not have to provide a lump sum after the payments commence.

Agreed.. Also, if the plan allows, the assets can be transferred to an inherited 403(b) at another financial institution, which must be maintained in the names of the beneficiary and the deceased, using the TIN of the beneficiary..

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Guest Peaceandhope

mb:

I stand corrected. Thank you. In my view this is yet ANOTHER crucially important reason for 403b owners that have named non-spouses as their primary beneficiary to discard the commissioned based 403(b) in favor of one that is no-load. And if a no-load 403b is not available to use a 457(b) which is generally available to tax-exempt employees and public school teachers.

Peaceandhope

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Appleby: If the plan allows movement from the existing 403(b) to another 403(b) would this movement be a RR 90-24 Direct Transfer or a Direct Rollover?

Peaceandhope,

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MarZ: See if the current carrier will honor a movement of funds to another 403(b) especially if the current carrier is high cost. IT WOULD BE AN OUTRAGE IF THE TWO CHILDREN WERE FORCED TO REMAIN WITH A HIGH COST PROVIDER IN ORDER TO TAKE LIFE EXPECTANCY PAYMENTS. Please clarify if the carrier gives any other payout options---do they allow for a 100 percent liquidation?

Peaceandhope

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Appleby: If the plan allows movement from the existing 403(b) to another 403(b) would this movement be a RR 90-24 Direct Transfer or a Direct Rollover?

90-24

Non-spouse beneficiaries are not eligible for the direct rollover option

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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MarZ,

Its safe to say that this annuity is of the high cost variety. You may want to effectuate a Rev. Ruling 90-24 Direct Transfer to a no-load 403(b)7 provider like the Vanguard and commence life expectancy withdrawals from that Custodial Account.

Peace and Hope,

Joel L. Frank

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