Non-spouse beneficiaries

[Santo Gold]

Non-spouse beneficiaries no longer have to take distribution of a participants account balance within 5 years. Is this correct and if so, was this part of PPA? Also, if true, is a plan amendment needed to allow for this? Does the answer change if this is a 403b rather than a DC plan?

Thanks

[Guest mjb]

See IRS notice 2007-7. Payments can be made over more than 5 yrs only if the participant dies in 2006 or later, distibution is paid to IRA no later than the yr after death and the plan allows for such rollover. Rules apply to 403b plans.

[Santo Gold]

See IRS notice 2007-7. Payments can be made over more than 5 yrs only if the participant dies in 2006 or later, distibution is paid to IRA no later than the yr after death and the plan allows for such rollover. Rules apply to 403b plans.

Thanks MJB. Could you clarify how a payment can be made from a plan for more than 5 years if the distribution must be paid to an IRA no later than 1 year after death? Or wait, is it that the distribution is rolled with 1 year after death, and then payments from the IRA can be spread over more than 5 years?

[Guest mjb]

The 5 year rule applies if benefits are not commenced over the life expectancy of the bene by the end of the yr following the yr of the participant's death. If the participant died in 2006 the bene can transfer the accrued benefits to an IRA by Dec 31, 2007 and take distributions over the bene's life expectancy. The 2007 mrd cannot be rolled over. If the bene rolls over the distribution to an IRA in Jan 2008 the bene must take a distribution of the entire amount in the IRA by Dec 21, 2011. The 5 yr rule does not apply if the IRA owner was taking mrds at death. In that case the payments can be made for the longer of the owner's remaining life expectancy or the life expectancy of the bene.

[k man]

doesn't the 5 year rule have to be provided for in the plan? we use a corbel prototype and the default is for the 5-yr rule to not apply unless an election is made.

[Guest mjb]

As long as plan permits a LS distribution , e.g requires that funds be taken out within 5 yrs, then rollover is permitted.

[John Feldt ERPA CPC QPA]

k man,

Check the post-egtrra tack-on amendment to the GUST document, or if done separately, the 401(a)(9) tack-on amendment, it should have the language there. We used Sungard and we chose to allow the beneficiary to elect the method, either the 5 year or the life expectancy.