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Deferral of Taxation by Non-spouse Beneficiary of a Lump-sum Distribut


jlf
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DB plan participant dies in service. The non-spouse beneficiary receives a lump-sum distribution equal to the present value of what would have been future pension payments to the deceased. Is there any way this non-spouse beneficiary may defer taxation on this distribution?

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Unfortunately, no. Code section 402©(4) defines eligible rollover distribution as one which, among other things, is made to the employee. Code section 402©(9) provides for treating a spouse who receives a distribution after the employee's death as if s/he were an employee for this purpose. But other beneficiaries of death benefits have no rollover rights.

Of course, the beneficiary could defer tax by deferring actual receipt of the distribution, (a) if the plan so provided, and (B) so long as the limitations of Code section 401(a)(9) were met. However, since you specified that the beneficiary actually received the distribution, there would be no way to defer the tax.

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