Rollovers by a surviving spouse when the deceased was a beneficiary ra

[Guest Rich Lemarie]

Our plan allows beneficiaries of deceased employees to keep the employee contributions in the plan in a special "beneficiary account." If the situation arises where a beneficiary who has money in such an account later dies, would the spouse of that beneficiary be allowed to roll that money into his or her own retirement plan or an IRA under EGTRRA? :confused:

[joel]

A non-spouse beneficiary of a tax-deferred account has the option of stretching out distributions from the account based on his/her own life expectancy beginning at the age that he/she inherited the account. This distribution method stretches out the tax liability over many years if not decades into the future.

[Guest Rich Lemarie]

Thanks for replying. I was wondering what would happen when that beneficiary later dies with the money still in the beneficiary account. Would his or her spouse be eligible to roll that money over to their own plan? Under EGTRRA, spouses of deceased participants are eligible to roll over distributions to another qualified plan that he or she participates in, but I'm not not sure if that rule extends to cases where the deceased was only a beneficiary of a plan participant rather than being an actual participant themself.

[Guest Elayne Showell]

[sorry, Rich! I am new at this message thing. To add an answer to your question. If the beneficary is deceased and the owner of the plan is not and he/she does not have a contingency listed, he/she can choose another beneficary. On the other hand, if both are deceased and there is no contingency listed and no estate named then the probate estate takes over.

I have a simular situation: We have a owner whos chooses his children(4) to received his benefits over the spouse however, we face the questions of how long can a beneficiary other then spouse leave money his 403(B) before transferring or taking a distribution and if 3 of the four choose to remove their share does the 4th one automatically have to withdrawal.

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I believe there is a 5yrs ruling on beneficary. What advice can you supply or referrals?

[Appleby]

Rich,

To answer your question directly- NO!

The designated beneficiary of the fist beneficiary (referred to as a second-generation beneficiary) is not permitted to roll the inherited assets to his/her IRA or retirement plan in which he/she participates.

The option to roll is available only to the spouse of the deceased participant.

[mbozek]

Elayne: Was the 403(B) annuity benefit divided into separate shares for each participant by the owner?

[joel]

Each succeeding non-spouse beneficiary of an IRA has the option of designating the balance of the account as his or her own "Beneficiary IRA". In turn, the owner of the "beneficiary IRA" has the option of using his or her own life expectancy in the calculation of Required Minimum Distributions. In order to avoid possible IRS penalties RMDs must start by December 31st of the year following the year of inheriting the IRA.

Peace and Hope,

Joel L. Frank

[Appleby]

Originally posted by Joel L. Frank

Each succeeding non-spouse beneficiary of an IRA has the option of designating the balance of the account as his or her own "Beneficiary IRA".  In turn, the owner of the "beneficiary IRA" has the option of using his or her own life expectancy, or the joint life expectancy of him or herself and his or her designated beneficiary, in the calculation of Required Minimum Distributions.  RMDs must start in the year the new owner designates the account balance as his or her own "beneficiary IRA".

Peace and Hope,

Joel L. Frank

Joel,

I must disagree with your response. Successor beneficiaries are not permitted to use their life expectancy. This is how it works: -

Scenario 1. Participant dies after the RBD and leaves the inherited assets to his children. If each child separates their portion into individual inherited accounts by 12/31 of the year following death, they are each permitted to use their own life expectancy. If not, then they must use the life expectancy of the oldest beneficiary. There is no joint life expectancy option for a beneficiary. (Unless you are a spouse beneficiary on an IRA who chooses to treat the IRA as his/her own)

Assume that beneficiary #1 is age 45 when the account owner (participant) dies. The year following the death of the participant, which is when beneficiary #1 must start taking distributions, beneficiary #1 is age 46. His single life expectancy (SLE) is 36.8. Distributions must be distributed over 36.8 years. Assume beneficiary #1 name his 20-year-old son as the beneficiary of his inherited account. Beneficiary #1 dies at age 47, when his SLE is 35.8 (this must be determined on a non-recalculated basis), his son is not permitted to use his life expectancy, instead his son must continue to use beneficiary #1’s life expectancy to determine annual distribution amounts.

[Guest Elayne Showell]

To mobzek:

Yes, the annuity benefit is divided between each of the 4 beneficiaries equally by the owner. 3 of the beneficaries wants to take the distribution.

[joel]

Appleby:

Thank you for the correction. Please note I have edited my reply. Do you agree with the edited version?

Thanks and Peace,

Joel L. Frank

[Appleby]

Yes- with the exception of the statement “RMDs must start in the year the new owner designates the account balance as his or her own "beneficiary IRA". “

The RMD must begin by 12/31 of the year following the death of the account owner. Some beneficiaries may be negligent and do not take control of the assets until after that period. For these individuals, a 50 percent penalty will be applied (by the IRS) for every required distribution amount not taken, beginning the year following the year the account owner dies.

[mbozek]

A-penalty may be waived by IRS for reasonable cause.

[Appleby]

True-however, the penalty must first be paid to the IRS- and if the IRS determines that the cause is 'reasonable', then the amount will be refunded to the taxpayer.

[joel]

Appleby,

I have made a 2nd revision. If you agree, you may want to revise/delete your relevant responses to me. Again, I thank you for your corrections and amplifications.

Peace,

Joel L. Frank

[mbozek]

A -Dont beleive everything you read Some taxpayers just give statement of reasonable cause with tax return and get the IRS to cancel the tax... also IRS has become flexible.

[Appleby]

mbozek

Can you cite a precedence or reference of law that permits this?

All we are doing here is state what the IRS has stated as the requirement.

The instructions to the Form 5329 state that if the taxpayer feels that he/she qualifies for the exemption form the penalty, the tax payer should file Form 5329, pay this excise tax, and attach your letter of explanation. If the IRS grants the request, the amount will be refunded to the taxpayer.

As law-abiding taxpayers, we should follow IRS instructions.

[mbozek]

All I can cite are statements from taxpayers who have filed the abatement request without paying the tax and have gotten approval from the IRS.