Beneficiary IRAs

[Bruce Steiner]

At least two PLRs (9608042 and 9418034) allow a spouse who is the beneficiary of a qualified plan to transfer the benefits to a beneficiary IRA (rather than rolling the benefits over into his/her own IRA).

I cannot think of any logical reason that the result should depend upon whether the beneficiary is the spouse. However, I have not found any authority one way or the other. Does anyone know of any authority either way as to whether a non-spouse beneficiary can do this.

In PLR 200244023, the beneficiary of a terminating plan took the benefits in the form of an annuity. Perhaps if the beneficiary IRA were permissible, the beneficiary would have done that instead. But it's possible the beneficiary in that case did not consider that possibility.

[Guest franky]

IRC 402©(9) specifically allows for a spouse beneficiary rollover (without specifying whether such receiving plan be in the spouse's own name or in a beneficiary titled account). There is no such authority for a nonspouse beneficiary to rollover. Therefore, it may take Congressional action to allow a nonspouse beneficiary such option.

[mbozek]

Whether there can be a transfer depends on the authority of the beneficary to make the transfers. Usually the beneficiary of an IRA receives to the all powers that the IRA owner had including the right to receive or make transfers to the IRA. If the beneficiary has the right to transfer the funds from the qualified plan the only question is whether the beneficiary is permitted to make a trustee to trustee transfer from the Q plan to the IRA in the decedent's name under the IRC. There are many IRS rulings permitting a beneficiary of an IRA in a decedent's name to use a trustee to trustee transfer of the funds to another IRA in the decedent's name.

[Guest franky]

Mbozek, you are correct that many PLRs have permitted Trustee-to-Trustee transfers by beneficiaries. However, that is not the issue here. We are discussing QRPs, which may not be Trustee-to-Trustee transferred to an IRA. Direct rollover is similar to Trustee-to-Trustee transfer, but it is not the same thing -- it is subject to rules in 402©. Such rules permit rollovers to an IRA only for a surviving spouse. We have no current authority for permitting a nonspouse beneficiary such option.

[Appleby]

franky

Regarding the term “transfer”…Bear in mind that the IRS sometimes use "transfer" to mean "movement of assets", and not necessarily "transfer" in the operational sense. This is evident in many PLRs that allow "trustee-to-trustee transfers" from qualified plans to IRAs, and allows Roth IRA conversions VIA a "trustee-to-trustee transfer" from the traditional IRA to the Roth IRA.

From a practical perspective, you cannot “transfer” asserts from a qualified plan to an IRA. A “transfer” is by definition a non-reportable transaction. The movement of assets from a qualified plan to an IRA must be done as a rollover, which is a reportable transaction.

Refer instructions for Form 1099-R and 5498.