PLR 200450057

[Belgarath]

Did anyone else find this odd? While it displays an unexpected level of flexibility and generosity by the Service, it does seem like a great departure from prior practice to allow the spouse of the deceased to exercise a rollover in the name of the deceased. I wonder if this will remain as quasi-official IRS thinking or if it will be changed in a future letter or ruling. Maybe the application is narrow enough so they didn't see it as a big deal?

[mbozek]

It does create the opportunity for any surviving spouse to transfer the deceased's benefits to an inherited IRA to avoid the 10% penalty tax and is consistent with the liberalizaton of the rollover rules under recent tax law. It seems to be at odds with the IRS position that an IRA cannot be established after death by the personal rep of estate although maybe there is a distinction if the IRA is established by the beneficiary who does not represent the estate. There is also a PLR which allowed a non spouse bene to direct a trustee to trustee transfer from a qual plan to an IRA established by the decedent naming the bene as recipient of death benefits.

[BPickerCPA]

Actually, this PLR merely confirmed what a bunch of us had already thought, based upon a literal reading of the regs.

Mbozek, I'm not aware of any PLR that allowed a post death transfer from a plan to an IRA by a non spouse bene. Can you give me the cite? Thanks.

[GBurns]

Belgarath

I cannot see what you find odd, since the PLR only explains what is already allowed in the IRC and Treas Regs. It is not as if it is interpreting or explaining a new law or Treas Regs.

[mbozek]

What is odd is that the ruling allows a spouse to establish an IRA in the name of the deceased participant with the spouse as the bene and the owner of the IRA in order to avoid the 10% penalty tax on distributions before 59 1/2. The ruling states that while a surviving spouse who rolls over a distribution from a Q plan to an IRA may elect to treat the IRA as the spouse's own, such an election is not necessar, but does not cite reg. 1.408-8 A-7.

[Belgarath]

GBurns and BPicker - I hadn't realized that the regs allowed this. I had always understood that while it was clearly allowable for a spouse to roll over the deceased's account to their OWN IRA, I had always understood that the Services position was that a rollover was otherwise "personal" - could only be elected by the IRA owner.

Obviously I was incorrect. Not that it necessarily matters now that the IRS has said it is ok, but I'd like to educate myself on this a bit - what specific section(s) of the regs is it that you interpret to allow this? Thanks very much.

[GBurns]

The PLR like all other PLRs cites within its text the relevant sections of the IRC and/or Treas Regs that are applicable to any conclusions drawn and does so on an item by item basis while leading you through each fact and conclusion. The rationale of the conclusions of PLR 200450057 is based mainly on the IRC itself although there is a reference to 1.401. As you read the PLR you will see each cite of the IRC and/or Treas Regs in context.

[mbozek]

B: I think the IRS is acknowledging that even though the IRA is titled in the name of the deceased, it is established by the spouse since she is the owner and her tax ID is used for the distributions. It is strange that the ruling lifts key language which permits opening of the IRA in the name of the deceased from the -8 A-7 reg but does not cite it.

[GBurns]

mbozek

Will you cite it, please?

[mbozek]

The language in the last sentence in my 12/14 6:58 post appears in both the plr and the -8 A-7 reg.

[Belgarath]

Gburns - sorry, perhaps I didn't make my question clear. I know what the IRS said - I read the PLR. I wanted to know what Code Section(s)/Reg(s) that YOU think permit a surviving spouse do do a rollover, not in the surviving spouse's name, but in the name of the deceased spouse. That's the part I found odd in the PLR - obviously many folks have read these differently than I have, and it appears they were right and I was wrong. Not the first time, and won't be the last! So I'd appreciate your insight as to which Section(s)/Regs(s), under a literal reading, say that this can be done. I want to read it from someone else's viewpoint (that it is permissible) so I can see how I misinterpreted them before. Thanks.

[Bird]

Sorry to jump in late...

I agree with Belgarath and MBozek that this is odd, and a new interpretation. (At least, I think that they still think that way, and are waiting for a cite to show that it's always been permitted.)

The PLR cites some Code sections but IMHO the letter makes a leap that a beneficiary (spousal, anyway) can "do" an IRA rollover for a decedent. I remember that this was part of recent proposed legislation but it was cut out or shot down somewhere along the line.

[GBurns]

So that it is not what I alone think, Here is an explanation that is better worded than mine :

Note the last question:

http://advisor.morningstar.com/advisor/doc...32,3629,00.html

Note that this interpretation is dated 05-14-04 thereby pre-dating PLR 20045057 by many months and therefore is not as a result of this PLR but as a result of what the authors (including B Picker) saw as existing law and precedent.

The cites given which include 1.408-8 A7 that mbozek referred to, and also includes:

Rollover to IRA in decedent's name: IRC § 402©, Treas. Regs. § 1.402©(2), A-12, § 1.408-8, A-7. PLRs 9418034 (spouse-beneficiary allowed to roll decedent's profit sharing plan and IRA benefits, by means of trustee-to-trustee transfers, to an IRA in decedent's name); 9608042 (same, regarding decedent's money purchase pension plan); 9842058 (same, regarding decedent's IRA).

Note that PLR 9418034 etc pre date PLR 20045057.

The wording that is in PLR 20045057 that was referred to by mbozek as being from Treas Regs 1.408-8 A-7 is on page 3 2nd to last paragraph of PLR 20045057, but also note the last paragraph of the PLR.

Note should also be taken of A-5 and others.

I trust that these are enough cites to satisfy those who wanted cites.

[Belgarath]

Thank you.

[Bird]

Ditto on the thanks. After my post, I was told elsewhere that the IRS has been issuing these kind of rulings for 10 years. Oh well. The proposed legislation I mentioned may have been for non-spouse rollovers.

[mbozek]

Despite what some believe, the conclusion in the rulings which allow the spouse to establish an IRA in the decendent's name is not expressly allowed under the regs (where it should be stated for the benefit of all surviving spouses not just those who can afford a PLR). These rulings are another "gotcha" trap for unwary taxpayers. The uninformed spouse who rolls over the deceased's retirement plan interest or IRA to his/her own IRA will be subject to the 10% penalty tax on withdrawals whereas the spouse who has a cleaver tax advisor will establish/continue the IRA in the decedent's name and avoid the penalty. This distinction in taxation does not appear in in the final mrd regs.