Non-Spousal Rollover: IRA vs Qualified Plan

[wsp]

Terminated participant has 200k account balance and is in latter stages of cancer treatment. Plan currently only allows for lump sum distributions but employer is willing to amend if it will benefit the participant. Participant needs a portion (1/4) of the account to pay for care which will likely take him through his passing. Beneficiary of account is participants daughter.

Can anyone tell me the best way to go about this to make sure that the distribution works for all involved?

Seems to me that the money is better served being left in the plan based on non-spousal rollover options; assuming that an amendment to allow for continuous right of withdrawals or installments could be made. But, perhaps I've interpreted that incorrectly. Thought that if it was rolled from a qualified plan into non-spousal IRA that it goes in the name of the beneficiary but if it's from an IRA then it remains in the name of the decedent FBO the beneficiary. That brings MRD into play far sooner...

What are the pitfalls here? Not likely that anyone else will fall into this category as it's a small business and plan termination is likely within 5 years so precedence of allowing for partial withdrawals isn't a big deal. Participant is not an HCE either.

Anything I'm missing to help get an answer?

[austin3515]

non-spouse beneficiaries can either take a full distribuion of the inheritance w/in 5 years of date of death, or take distributions over their life expectancy. In that regard, the MRD rules are the same (as I understand it) regardless of whether the money stays in the plan or is rolled to an IRA, except for one thing.

Most plan's provide that after death MRD's are full distribution after 5 years. However, if this is the case they can roll their money to an Decedent FBO Beneficiary IRA and take the lifetime distributions from the IRA. Either way, the moeny should be able to be withdrawn sooner - the IRS would be happy to tax it for you!

I'm not quite sure if this answers you questions?

[Bird]

I don't think it matters. Unless I'm the one missing something...

The non-spousal rollover was added to put non-spouse benes on the same footing they'd have been on had the money been in an IRA.

[wsp]

Thanks to the both of you. Was thinking that somehow there was favorable loophole treatment for non-spousal rollover after death from the QP. Didn't think it required the receiving IRA to be a decedent FBO the beneficiary if it came from a QP.

Since it doesn't matter...out it goes!