Pension Act - RE: IRA/non-spouse beneficiary

[Guest jusducki]

It appears with the recent Pension Reform Act that a non-spouse beneficary of an inheirited qualified plan account can now roll the distribution into an IRA rather than taking RMD. Question: if Plan participant rolled entire account into an IRA and added no additional funds....dies, leaving account to Spouse who transfers account to her name....when Spouse dies, can the kids roll their distribution directly to an IRA rather than taking an RMD? Thanks in advance for any replies or thoughts on this.

[Guest mjb]

According to the ASPPA summary (P9) effective 2007 the amendment allows a non spouse beneficiary to roll over a distribution from a Q plan to an IRA so as to receive mrds under the IRA. Funds that are held in an IRA owned by the decedent do not need this provision.

[Bird]

Funds that are held in an IRA owned by the decedent do not need this provision.

Correct. This just allows beneficiaries to get money out of a plan and take RMDs from an IRA instead of from a plan. It could potentially allow for longer payouts (e.g. if the plan required lump sums to benes), but only in comparison to the old plan rules, not in comparison to an IRA.

[Guest jusducki]

Funds that are held in an IRA owned by the decedent do not need this provision.

Correct. This just allows beneficiaries to get money out of a plan and take RMDs from an IRA instead of from a plan. It could potentially allow for longer payouts (e.g. if the plan required lump sums to benes), but only in comparison to the old plan rules, not in comparison to an IRA.

So, the bottom line on the original question posed is: non-spousal beneficiaries of an IRA (rolled to from a QPlan) must continue under the old method - either all within five years or rmd based on their own life expectancy?

[Bird]

I'm not sure. I can see tracking of the 5 year rule being problematic. I'd guess the IRS will have to issue some regs on this.

[jevd]

My understanding is that the new law allows for the non-spouse beneficiary to roll the plan assets into an inherited IRA and the current IRA regs apply. The account is considered an Inherited IRA and distribution rules apply depending on death before or after RBD.