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Everett Moreland

Any way for a nonspouse plan beneficiary to make a tax-free rollover t

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Has anyone heard of a way to allow a nonspouse beneficiary under a qualified plan to make a tax-free rollover to an IRA? I've always thought that this wasn't allowed, but have heard that several insurance and investment companies are allowing rollovers to IRAs in the name of the beneficiary.

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In whose name is the rollover IRA titled? The beneficiary can change the investments, but he can't escape 401(a)(9).

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The term "rollover" is incorrect in this connection, as only SPOUSAL beneficiaries can make "rollovers".

A BENEFICIARY can - IF THE TRUSTEE PERMITS (some DON'T!) - make a Trustee-To-Trustee TRANSFER of the account. But the account MUST be maintained in the name AND SOCIAL SECURITY NUMBER of the DECEDENT IRA OWNER (e.g.: "John Jones, deceased, SSN 444-55-6666, for the benefit of Kiddo Jones").

Sy Goldberg cites several horror stories of Trustees who inadvertently or "by policy" issued the check to the new Trustee IN THE NAME OF THE BENEFICIARY. When that happens, the beneficiary must report the entire distribution.

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

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This involves the payment of a death benefit from a qualified plan. John, are you saying that you can do a trustee-to-trustee transfer from a qualified plan to an IRA, without a distribution/rollover occurring? I've seen transfers between like types of plans (IRA to IRA, or qualified plan to qualified plan), but not between a qualified plan and an IRA. Thanks for any input.

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Ah, it's not an IRA!

My mistake.

It's got to STAY whatever type of plan it is, and, for that matter, stay subject to the specific plan rules regarding distributions. Some plans, for example, require lump sum distributions. Some (usually, defined benefit plans) won't permit lump sum distributions.

------------------

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818

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Guest Golden Girl

For some reason, I thought nonspouse beneficiaries of qualified plans could now roll to IRAS after 2007 - but it appears this only applies in certain limited circumstances to meet minimum distribution requirements from the IRA with respect to the beneficiary (which I am not sure I really understand).

Barring any of this is it stil the case that NONspouse beneficiaries CANNOT rollover over qualified plan benefits to IRAs?

Help

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Guest Sieve

Nonspouse beneficiary of a qualified plan account can transfer assets to an IRA--in what has been called a "nonspouse rollover" but is really a plan-to-plan transfer. (IRC Section 402©(11).) But 401(a)(9) continues to apply in the hands of the beneficiary as a result of the death of the plan participant, and the IRA is NOT owned by the beneficiary and is NOT treated as his/her own (rather, it is treated as inherited). These transfers MUST be permitted by qualified plans for plan years beginning on or after 1/1/2010 (i.e., they no longer are discretionary on a per plan basis).

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Sieve - isn't it also true that the "nonspousal beneficiary IRA" accounts that receive the qualified plan distribution must be distributed within up to 5 years? I was under the impression that these new accounts simply allow the nonspouse beneficiary to spread the taxation of the benefit over 5 years as opposed to taking it all at once.

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Guest Sieve

Not necessarily true.

401(a)(9) permits a designated beneficiary (DB) to take distributions over the DB's life expectancy, as long as the 1st distribution is taken by 12/31 of the calendar year following the calendar year of death--and, if not begun by then, the distribution to a nonspouse DB must be completed within a 5-year period. But, many/most qualified plans do not permit the stretch-out period to be used by a nonspouse DB, but require a distribution to a nonspouse DB to be made in a lump sum (or in installments) within 5 or fewer years after death.

Therefore, the nonspouse beneficiary rules are an attempt to provide for a method whereby a nonspouse DB (e.g., in a non-traditional relationship) generally can have the same payout options as a spouse DB (except that a nonspouse DB may not treat the account as his/her own nor wait until the particiapnt would have attained age 70-01/2, both of which options are available only to a spouse DB). The nonspouse DB can now (at least for plan years beginning 1/1/10 or after) directly transfer the qualified plan account to an IRA and then, in the IRA, take a distribution over the DB's life expectancy (which the IRA no doubt permits) even though the particular qualified plan from which the assets were transferred might not have permitted the stretch-out for the nonspouse DB. (But, if the transfer by the nonspouse to the IRA does not occur by the end of the calendar year following the calendar year of death, then the 5-year rule applies since, in that instance, the stretch-out is not avilable.) The IRA must be held in the name of the deceased, FBO the nonspouse beneficiary.

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For some reason, I thought nonspouse beneficiaries of qualified plans could now roll to IRAS after 2007 - but it appears this only applies in certain limited circumstances to meet minimum distribution requirements from the IRA with respect to the beneficiary (which I am not sure I really understand).

Barring any of this is it stil the case that NONspouse beneficiaries CANNOT rollover over qualified plan benefits to IRAs?

Help

Everyone please NOTE: Golden Girl found an OLD thread from 1999. The RULES recently CHANGED making the old information in the first several posts OBSOLETE.

Please be sure to look at the dates on prior posts before relying on that information as laws are subject to change.

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