Distribution to Non-spouse Beneficiary

[mming]

Does mandatory income tax withholding apply when a total distribution amount that's less than $1,000 (but more than $200) from a profit sharing plan is made due to a participant's death? Also, can the beneficiary roll over the amount (directly or otherwise) to an IRA, even if the document doesn't specify so? All help is greatly appreciated.

[Mike Preston]

No. No. By definition if the document says yes, then mandatory withholding should apply, shouldn't it?

[Bird]

No mandatory WH on non-spouse rollovers; Notice 2007-7. The document must permit the rollover, but not right away...can be done with the rest of the PPA restatement; clarified in Rev Proc 2007-44.

[Guest mjb]

No. No. By definition if the document says yes, then mandatory withholding should apply, shouldn't it?

There is is a common misconception that transfers of retirement benefits to an inherited IRA of a non spouse is a rollover. Under IRC 402©(11) it is defined as a trustee to trustee transfer that is treated as a rollover. Therefore none of the R/o provisions apply e.g., the funds cannot be paid to the beneficary, 20% withholding does not apply, the account cannot be established in the name of the bene, etc. I dont think voluntary withholding is permitted because there can be no distribution of the funds to the beneficary which triggers withholding.

Bird: I thought that the IRS will require that all plans must permit r/os by non spouse beneficaries as of 1/1/08 because of the pending tech corrections act which will mandate such transfers.