Separate Accounts for Beneficiaries

[Felicia]

When an aco****holder dies and the beneficiaries request that assets be put into separate accounts for each beneficiary, how are you doing this? Are you requiring each beneficiiarty to sign paperwork? How do you do that without running afoul of the fact that non-spouse beneficiaries cannot treat the account as their own? That is, how do they sign paperwork setting up the separate accounts and at the same time not treat the account as their own?

[katieinny]

You don't say whether you are talking about a qualified plan or an IRA. It sounds like you are talking about non-spousal beneficiaries.

For an IRA, it's a simple matter of setting up accounts indicating both the beneficary's name and the deceased person's name --

John Smith as beneficiary of the Robert Smith IRA, using John's social security number. John can choose the investments and/or move the money around, as long as Robert's name as the original IRA holder always appears in the account title. The assets would move from Robert's account to the inherited account as a transfer, so that no taxable event occurs. Then John will be taxed on distributions from the inherited account.

For a qualified plan, most likely a distribution will take place based on the what the plan says will happen when a participant dies. A non-spouse beneficiary cannot set up an IRA with QP money as outlined above, because that would essentially be a rollover.

[mbozek]

I thought separate accounts for beneficaries can only be designated by a written designation on the beneficary designation form prior to death. see reg. 1. 401(a)(9) -4 A-5©. Separate accounts permit each beneficiary to receive his/her portion of the participant's account based up that bene's life expectancy. Sep. accts can be made under a Q plan if the plan permits designation of sep accounts. Sep acct of non spouses under a Q plan cannot be transferred to an IRA by a tax free rollover. The right to direct investment is considered a separate sub account.