Extended Distributions to IRA Beneficiaries

[Guest SPollock]

I re-read an article in the Wall Street Journal dated March 18,1999. The article stated that a number of investment companies, including TIAA-CREF, are telling their clients that the surviving NON-SPOUSE beneficiaries can continue the distribution schedule based on the original owners life and are NOT required to be taxed on the full distribution immediately (or over 5 years). Is this true? Is this the same for 401(k) distributions? (The articel seems to say it is.)

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[Bruce Steiner]

In the case of a 401(k) plan, or other employer plan, you have to check the plan to make sure it offers all the choices that the law allows.

If this presents a problem, the employee (if it is possible for him/her to do so) may wish to take his/her benefits out of the plan and roll them over into an IRA.

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL

[John Olsen]

The 5 year rule applies if the IRA owner or plan participant died BEFORE reaching Required Beginning Date.

If death occurred AFTER the RBD, then the non-spousal beneficiary would be able to take distributions over the remainder of the Joint Life Expectancy of the deceased plan participant and beneficiary (if plan participant had opted NOT to use annual recalculation of his age)or the remainder of the beneficiary's Single Life Expectancy (if annual recalc had been elected).

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

[Guest J Singletary]

I would like to add to John Olsen's comment. In the case of death before required beginning date, the code and regs. allow a non-spouse beneficiary to take single life expectancy distributions (based on the oldest beneficiary's life). This is commonly called the "exception to the five year rule". Again, as Bruce Steiner states, you would have to verify that the plan document is not more restrictive than the law.