Distribution of a deceased participant

[Guest terric]

If a husband and a wife are both greater than 5% owners and participants in the same plan and the husband dies, can the wife "roll over" her husband's account balance into her account balance under the same plan as long as the plan document allows for rollovers?

Husband died prior to obtaining age 70 1/2 - wife will not be 70 1/2 for some time and would like to leave the money in the plan but not be required to receive minimum distributions.

Thank you.

[Mary Kay Foss]

A spouse beneficiary can roll inherited benefits into an IRA or into another qualified plan. It is fine to roll it into her account in the same plan.

When the spouse is the beneficiary and the participant was under 70-1/2, the spouse does not need to take RMDs until the spouse would have reached 70-1/2. To use that provision, the benefits stay in the name of the decedent with the spouse's SSN and name (as beneficiary) added.

[Guest jfp]

I don't recall if there is a cite, but the problem is that under 401(a) the trust must be a "good" trust under local law, and generally speaking a trust does not exist under local law if the settlor, trustee and sole beneficiary are the same person. That is the situation you'd have in a one-person plan where the sole participant is an unincorporated sole proprietor.

[Guest jfp]

Sorry; I responded to the wrong post.

[Guest terric]

The one thing that I am hesitating on in saying that it is okay for the spouse to just roll her husband's account balance into her account balance under the same plan is that everything that I have read says that the distribution from her husband's account balance can be rolled over into another Qualified Plan.

Any guidance stating it can be rolled over into the same plan?

[FundeK]

I found this in the ERISA Outline book.

Chapter 7: Taxation Rules - Section XIV (Death benefits): Part D (Rollover by surviving spouse)

2.g. What if surviving spouse is a participant in the same plan as the decedent? In this case, the spouse could elect to receive the deceased participant™s benefit in the form of an eligible rollover distribution (e.g., single-sum payment), assuming the plan offers such a distribution option, and then direct a rollover to the surviving spouse™s account in the same plan. There is no prohibition in the tax code that the recipient plan of a rollover cannot be the same as the distributing plan. If the spouse makes such an election, the direct rollover could be accomplished simply by transferring the inherited account to the account held for the benefit of the spouse in his/her capacity as a participant in the plan. The IRS acknowledged its agreement with this approach in a Q&A session with the American Bar Association™s Joint Committee on Employee Benefits, held May 11, 2002. Note,

however, that this approach would not be permissible for a non-spouse beneficiary who participates in the same plan because non-spouse beneficiaries do not have a rollover option.