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Can an UTMA custodian rollover into an inherited IRA on the minor's behalf?


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Can a custodian designated as a beneficiary pursuant to the Uniform Transfers to Minors Act roll over an eligible distribution to an inherited IRA on the minor's behalf pursuant to IRC 402(2)(11)?

Any nonspouse designated beneficiary, as defined by I.R.C. section 401(a)(9)(E), who receives an eligible distribution from a qualified retirement plan can roll over the distribution to an IRA, which will then be treated as an inherited IRA. 26 U.S.C. 402©(11). Because only “designated beneficiaries” are eligible to roll over eligible distributions, the definition of “designated beneficiary” is the crux of this issue.

Section 401(a)(9)(E) defines “designated beneficiary” as “any individual designated as a beneficiary by the employee.” Treasury Regulation §1.401(a)(9)-4, Q&A-3 elaborates on the definition of “designated beneficiary” contained in section 401(a)(9)(E). It reads:

Q-3. May a person other than an individual be considered to be a designated beneficiary for purposes of section 401(a)(9)?

A-3. No, only individuals may be designated beneficiaries for purposes of section 401(a)(9). A person that is not an individual, such as the employee's estate, may not be a designated beneficiary. If a person other than an individual is designated as a beneficiary of an employee's benefit, the employee will be treated as having no designated beneficiary for purposes of section 401(a)(9), even if there are also individuals designated as beneficiaries. However, see A-5 of this section for special rules that apply to trusts and A-2 and A-3 of Sec. 1.401(a)(9)-8 for rules that apply to separate accounts.

Only individuals and trusts (which satisfy the requirements of Treas. Reg. §1.401(a)(9)-4, Q&A-5) are “designated beneficiaries” for purposes of I.R.C. section 401(a)(9). Therefore, only individuals and trusts may roll over distributions into an inherited IRA.

Any thoughts on whether an UTMA custodianship is an individual or a trust or neither?

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Neither. The custodian may be an individual, but is not the designated beneficiary. Why do you think that the minor child is not the designated beneficiary?

I believe that a UTMA/UGMA custodian is acting only on behalf of the minor child and is only holding assets for the benefit of the minor child and is not a trustee of a trust on behalf of the minor, so the minor is the designated beneficiary (if named by the participant or if named in the plan document). If the custodian is identified as beneficiary in his/her custodial capacity, then I think it is clear that the minor on whose behalf the individual acts as custodian is the true beneficiary and is, in fact, the designated beneficiary.

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Can a custodian designated as a beneficiary pursuant to the Uniform Transfers to Minors Act roll over an eligible distribution to an inherited IRA on the minor's behalf pursuant to IRC 402(2)(11)?

Any nonspouse designated beneficiary, as defined by I.R.C. section 401(a)(9)(E), who receives an eligible distribution from a qualified retirement plan can roll over the distribution to an IRA, which will then be treated as an inherited IRA. 26 U.S.C. 402©(11). Because only “designated beneficiaries” are eligible to roll over eligible distributions, the definition of “designated beneficiary” is the crux of this issue.

Section 401(a)(9)(E) defines “designated beneficiary” as “any individual designated as a beneficiary by the employee.” Treasury Regulation §1.401(a)(9)-4, Q&A-3 elaborates on the definition of “designated beneficiary” contained in section 401(a)(9)(E). It reads:

Q-3. May a person other than an individual be considered to be a designated beneficiary for purposes of section 401(a)(9)?

A-3. No, only individuals may be designated beneficiaries for purposes of section 401(a)(9). A person that is not an individual, such as the employee's estate, may not be a designated beneficiary. If a person other than an individual is designated as a beneficiary of an employee's benefit, the employee will be treated as having no designated beneficiary for purposes of section 401(a)(9), even if there are also individuals designated as beneficiaries. However, see A-5 of this section for special rules that apply to trusts and A-2 and A-3 of Sec. 1.401(a)(9)-8 for rules that apply to separate accounts.

Only individuals and trusts (which satisfy the requirements of Treas. Reg. §1.401(a)(9)-4, Q&A-5) are “designated beneficiaries” for purposes of I.R.C. section 401(a)(9). Therefore, only individuals and trusts may roll over distributions into an inherited IRA.

Any thoughts on whether an UTMA custodianship is an individual or a trust or neither?

Under the UTMA the minor immediately acquires both legal and equitable title to the property held by the custodian and the custodian acts as a fiduciary holding the property for the benefit of the minor. Under IRC 6903 a person acting in a fiduciary capacity for another person assumes all of the powers, rights and duties of such other person in respct to a tax imposed under the IRC. IRC 7701(a)(6) defines a fiduciary to include a guardian, trustee, executor, administrator, conservator, receiver or any person acting in any fiduciary capacity for any person. The courts have disagreed with the IRS prohibition of right of a fiduciary to act on behalf of a taxpayer in effecting a rollover to an IRA. See Gunther v. US, 573 FSupp 126 (1982) where the the district ct held that the executor of a deceased's estate as the fiduciary of the deceased had the authority under 6903 to rollover a distribution paid from a qualified plan to the employee prior to death to an IRA established by the executor in the name of the employee.

Why doent the UTMA custodian meet the fiduciary requirement under 6903?

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Can a custodian designated as a beneficiary pursuant to the Uniform Transfers to Minors Act roll over an eligible distribution to an inherited IRA on the minor's behalf pursuant to IRC 402(2)(11)?

Any nonspouse designated beneficiary, as defined by I.R.C. section 401(a)(9)(E), who receives an eligible distribution from a qualified retirement plan can roll over the distribution to an IRA, which will then be treated as an inherited IRA. 26 U.S.C. 402©(11). Because only “designated beneficiaries” are eligible to roll over eligible distributions, the definition of “designated beneficiary” is the crux of this issue.

Section 401(a)(9)(E) defines “designated beneficiary” as “any individual designated as a beneficiary by the employee.” Treasury Regulation §1.401(a)(9)-4, Q&A-3 elaborates on the definition of “designated beneficiary” contained in section 401(a)(9)(E). It reads:

Q-3. May a person other than an individual be considered to be a designated beneficiary for purposes of section 401(a)(9)?

A-3. No, only individuals may be designated beneficiaries for purposes of section 401(a)(9). A person that is not an individual, such as the employee's estate, may not be a designated beneficiary. If a person other than an individual is designated as a beneficiary of an employee's benefit, the employee will be treated as having no designated beneficiary for purposes of section 401(a)(9), even if there are also individuals designated as beneficiaries. However, see A-5 of this section for special rules that apply to trusts and A-2 and A-3 of Sec. 1.401(a)(9)-8 for rules that apply to separate accounts.

Only individuals and trusts (which satisfy the requirements of Treas. Reg. §1.401(a)(9)-4, Q&A-5) are “designated beneficiaries” for purposes of I.R.C. section 401(a)(9). Therefore, only individuals and trusts may roll over distributions into an inherited IRA.

Any thoughts on whether an UTMA custodianship is an individual or a trust or neither?

Under the UTMA the minor immediately acquires both legal and equitable title to the property held by the custodian and the custodian acts as a fiduciary holding the property for the benefit of the minor. Under IRC 6903 a person acting in a fiduciary capacity for another person assumes all of the powers, rights and duties of such other person in respct to a tax imposed under the IRC. IRC 7701(a)(6) defines a fiduciary to include a guardian, trustee, executor, administrator, conservator, receiver or any person acting in any fiduciary capacity for any person. The courts have disagreed with the IRS prohibition of right of a fiduciary to act on behalf of a taxpayer in effecting a rollover to an IRA. See Gunther v. US, 573 FSupp 126 (1982) where the the district ct held that the executor of a deceased's estate as the fiduciary of the deceased had the authority under 6903 to rollover a distribution paid from a qualified plan to the employee prior to death to an IRA established by the executor in the name of the employee.

Why doent the UTMA custodian meet the fiduciary requirement under 6903?

Touche. Thanks for the response. It seems like it would meet the fiduciary requirement under 6903. But I hesitate to take for granted that a fiduciary can act on behalf of a taxpayer in effecting a rollover to an IRA. It looks like Gunther is the only case on this issue. Any chance you can direct me to IRS authority that is to the contrary?

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Can a custodian designated as a beneficiary pursuant to the Uniform Transfers to Minors Act roll over an eligible distribution to an inherited IRA on the minor's behalf pursuant to IRC 402(2)(11)?

Any nonspouse designated beneficiary, as defined by I.R.C. section 401(a)(9)(E), who receives an eligible distribution from a qualified retirement plan can roll over the distribution to an IRA, which will then be treated as an inherited IRA. 26 U.S.C. 402©(11). Because only “designated beneficiaries” are eligible to roll over eligible distributions, the definition of “designated beneficiary” is the crux of this issue.

Section 401(a)(9)(E) defines “designated beneficiary” as “any individual designated as a beneficiary by the employee.” Treasury Regulation §1.401(a)(9)-4, Q&A-3 elaborates on the definition of “designated beneficiary” contained in section 401(a)(9)(E). It reads:

Q-3. May a person other than an individual be considered to be a designated beneficiary for purposes of section 401(a)(9)?

A-3. No, only individuals may be designated beneficiaries for purposes of section 401(a)(9). A person that is not an individual, such as the employee's estate, may not be a designated beneficiary. If a person other than an individual is designated as a beneficiary of an employee's benefit, the employee will be treated as having no designated beneficiary for purposes of section 401(a)(9), even if there are also individuals designated as beneficiaries. However, see A-5 of this section for special rules that apply to trusts and A-2 and A-3 of Sec. 1.401(a)(9)-8 for rules that apply to separate accounts.

Only individuals and trusts (which satisfy the requirements of Treas. Reg. §1.401(a)(9)-4, Q&A-5) are “designated beneficiaries” for purposes of I.R.C. section 401(a)(9). Therefore, only individuals and trusts may roll over distributions into an inherited IRA.

Any thoughts on whether an UTMA custodianship is an individual or a trust or neither?

Under the UTMA the minor immediately acquires both legal and equitable title to the property held by the custodian and the custodian acts as a fiduciary holding the property for the benefit of the minor. Under IRC 6903 a person acting in a fiduciary capacity for another person assumes all of the powers, rights and duties of such other person in respect to a tax imposed under the IRC. IRC 7701(a)(6) defines a fiduciary to include a guardian, trustee, executor, administrator, conservator, receiver or any person acting in any fiduciary capacity for any person. The courts have disagreed with the IRS prohibition of right of a fiduciary to act on behalf of a taxpayer in effecting a rollover to an IRA. See Gunther v. US, 573 FSupp 126 (1982) where the the district ct held that the executor of a deceased's estate as the fiduciary of the deceased had the authority under 6903 to rollover a distribution paid from a qualified plan to the employee prior to death to an IRA established by the executor in the name of the employee.

Why doent the UTMA custodian meet the fiduciary requirement under 6903?

Touche. Thanks for the response. It seems like it would meet the fiduciary requirement under 6903. But I hesitate to take for granted that a fiduciary can act on behalf of a taxpayer in effecting a rollover to an IRA. It looks like Gunther is the only case on this issue. Any chance you can direct me to IRS authority that is to the contrary?

Why do you hesitate to grasp the obivous? Reg-1.401(a)(9)-5 Q-4© expressly recognizes the right of a minor to be a beneficiary who can receive an MRD over the minors life expectancy. As the IRS knows a minor is incompetent to handle his or her own affairs and can only act though an agent or guardian appointed as a fiduciary on the minors behalf. An agent or fiduciary acting on behalf of another person interest is clearly exercising the legal right of the minor to rollover the distibution as a designated beneficiary under 402©(11). Under your logic only beneficiaries 18 or older could rollover eligible distributions to an IRA since no other person could act on a beneficary's behalf to exercise rights accorded to them under the IRC.

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Can a custodian designated as a beneficiary pursuant to the Uniform Transfers to Minors Act roll over an eligible distribution to an inherited IRA on the minor's behalf pursuant to IRC 402(2)(11)?

Any nonspouse designated beneficiary, as defined by I.R.C. section 401(a)(9)(E), who receives an eligible distribution from a qualified retirement plan can roll over the distribution to an IRA, which will then be treated as an inherited IRA. 26 U.S.C. 402©(11). Because only “designated beneficiaries” are eligible to roll over eligible distributions, the definition of “designated beneficiary” is the crux of this issue.

Section 401(a)(9)(E) defines “designated beneficiary” as “any individual designated as a beneficiary by the employee.” Treasury Regulation §1.401(a)(9)-4, Q&A-3 elaborates on the definition of “designated beneficiary” contained in section 401(a)(9)(E). It reads:

Q-3. May a person other than an individual be considered to be a designated beneficiary for purposes of section 401(a)(9)?

A-3. No, only individuals may be designated beneficiaries for purposes of section 401(a)(9). A person that is not an individual, such as the employee's estate, may not be a designated beneficiary. If a person other than an individual is designated as a beneficiary of an employee's benefit, the employee will be treated as having no designated beneficiary for purposes of section 401(a)(9), even if there are also individuals designated as beneficiaries. However, see A-5 of this section for special rules that apply to trusts and A-2 and A-3 of Sec. 1.401(a)(9)-8 for rules that apply to separate accounts.

Only individuals and trusts (which satisfy the requirements of Treas. Reg. §1.401(a)(9)-4, Q&A-5) are “designated beneficiaries” for purposes of I.R.C. section 401(a)(9). Therefore, only individuals and trusts may roll over distributions into an inherited IRA.

Any thoughts on whether an UTMA custodianship is an individual or a trust or neither?

Under the UTMA the minor immediately acquires both legal and equitable title to the property held by the custodian and the custodian acts as a fiduciary holding the property for the benefit of the minor. Under IRC 6903 a person acting in a fiduciary capacity for another person assumes all of the powers, rights and duties of such other person in respect to a tax imposed under the IRC. IRC 7701(a)(6) defines a fiduciary to include a guardian, trustee, executor, administrator, conservator, receiver or any person acting in any fiduciary capacity for any person. The courts have disagreed with the IRS prohibition of right of a fiduciary to act on behalf of a taxpayer in effecting a rollover to an IRA. See Gunther v. US, 573 FSupp 126 (1982) where the the district ct held that the executor of a deceased's estate as the fiduciary of the deceased had the authority under 6903 to rollover a distribution paid from a qualified plan to the employee prior to death to an IRA established by the executor in the name of the employee.

Why doent the UTMA custodian meet the fiduciary requirement under 6903?

Touche. Thanks for the response. It seems like it would meet the fiduciary requirement under 6903. But I hesitate to take for granted that a fiduciary can act on behalf of a taxpayer in effecting a rollover to an IRA. It looks like Gunther is the only case on this issue. Any chance you can direct me to IRS authority that is to the contrary?

Why do you hesitate to grasp the obivous? Reg-1.401(a)(9)-5 Q-4© expressly recognizes the right of a minor to be a beneficiary who can receive an MRD over the minors life expectancy. As the IRS knows a minor is incompetent to handle his or her own affairs and can only act though an agent or guardian appointed as a fiduciary on the minors behalf. An agent or fiduciary acting on behalf of another person interest is clearly exercising the legal right of the minor to rollover the distibution as a designated beneficiary under 402©(11). Under your logic only beneficiaries 18 or older could rollover eligible distributions to an IRA since no other person could act on a beneficary's behalf to exercise rights accorded to them under the IRC.

I "grasp" it. I'm just giving humble pause to the dearth of authority on the matter.

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What kind of authority would satisfy you?

Are you saying that even though the MRD regs allow a minor to be a beneficiary and 402(a)(11) allows a roll over to an IRA, a minor who cannot legally handle his or her own affairs under state law cannot benefit from such provisions if a representative or an agent of the minor must act on the minor's behalf?

Are you saying that a fiduciary could not make make an election or rollover funds for an adult beneficiary who is mentally incapacitated under state law?

These are the situatons that 6903 was intended to be available for.

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