Participant died before rollover made

[jane123]

A participant requested a distribution from his DB pension plan and instructed the plan to pay the check to his IRA. He died before receiving the check. Also, the IRA was not yet set up. What can his wife do with the check? The plan refuses to take it back and make it payable to his wife, even though she is his beneficiary.

[Guest Sieve]

If there has been no IRA established, then the plan ought to take back the $$ since the check will not (perhaps cannot) be cashed. The attempted rollover failed as a result of the death, and the $$ should go back into the qualified plan's account. In fact, as I think about it, how could a check already be cut for a direct rollover when the participant did not already have an IRA established?

If the check was a direct distribution to the participant, then it will be income to him in the year of his death, and taxable as such, but should be able to be rolled into an IRA for the wife within 60 days of the date of the distribution and then should not be included in husband's income for the year of death.

[Guest mjb]

If there has been no IRA established, then the plan ought to take back the $$ since the check will not (perhaps cannot) be cashed. The attempted rollover failed as a result of the death, and the $$ should go back into the qualified plan's account. In fact, as I think about it, how could a check already be cut for a direct rollover when the participant did not already have an IRA established?

If the check was a direct distribution to the participant, then it will be income to him in the year of his death, and taxable as such, but should be able to be rolled into an IRA for the wife within 60 days of the date of the distribution and then should not be included in husband's income for the year of death.

The plan does not have to take the check back since the participant signed the paperwork requesting payment and the check received after death becomes an asset of his estate, the same as a dividend payment that is received after death. Although the IRS believes that the right to rollover is personal to the employee the courts disagree. The spouse can be appointed the executor of the employee's estate and then roll over the distribution to an IRA in the deceased employee's name within 60 days after receipt of the check and designate herself as the beneficiary. See Gunther v. US, 1982 W. District MI. Spouse can remain as beneficiary of the inherited IRA or rollover the funds to own IRA.

A distribution payable to a participant cannot be rolled over to the IRA of his spouse. Rodoni v. IRS, 105 TC 29 (1995).

[Guest Sieve]

mjb --

If the check were made payable to an IRA trustee/custodian rather than to the participant (as I assumed at the start of my post, based on the OP), wouldn't it then continue to be part of the plan's account upon participant's death (since no IRA was established prior to death), or would wife have to open an IRA in the name of husband in which to place the rollover funds?

[jane123]

If the check were made payable to an IRA trustee/custodian rather than to the participant (as I assumed at the start of my post, based on the OP),...

Your assumption is correct. The check was made payable to the IRA custodian for the IRA. The participant intended to establish the IRA after receiving the check.

[Guest mjb]

mjb --

If the check were made payable to an IRA trustee/custodian rather than to the participant (as I assumed at the start of my post, based on the OP), wouldn't it then continue to be part of the plan's account upon participant's death (since no IRA was established prior to death), or would wife have to open an IRA in the name of husband in which to place the rollover funds?

The IRA has to be opened in the name of the husband since the check would be payable to his account at the bank/ mutual fund which would be acting as custodian/trustee.

[jane123]

mjb --

If the check were made payable to an IRA trustee/custodian rather than to the participant (as I assumed at the start of my post, based on the OP), wouldn't it then continue to be part of the plan's account upon participant's death (since no IRA was established prior to death), or would wife have to open an IRA in the name of husband in which to place the rollover funds?

The IRA has to be opened in the name of the husband since the check would be payable to his account at the bank/ mutual fund which would be acting as custodian/trustee.

That is what my boss thought. But I called the bank and they said they cannot open the account in his name, because he is not able to sign the paperwork, and they are required to give the IRA disclosures .

Thank you for your responses.

Jane

[Guest mjb]

mjb --

If the check were made payable to an IRA trustee/custodian rather than to the participant (as I assumed at the start of my post, based on the OP), wouldn't it then continue to be part of the plan's account upon participant's death (since no IRA was established prior to death), or would wife have to open an IRA in the name of husband in which to place the rollover funds?

The IRA has to be opened in the name of the husband since the check would be payable to his account at the bank/ mutual fund which would be acting as custodian/trustee.

That is what my boss thought. But I called the bank and they said they cannot open the account in his name, because he is not able to sign the paperwork, and they are required to give the IRA disclosures .

Thank you for your responses.

Jane

The bank is wrong. The paperwork can be signed by a personal representative of the employee who is a fiduciary under state law, e.g. the executor, since under IRC 6903 a fiduciary can perform any act that the taxpayer could perform. In the Gunther case the court cited 6903 as authority for the executor to sign the documents to open the IRA and receive the disclosure. What needs to be done is for the attorney for the spouse/executor call the bank and ask why 6903 would not apply.

If the plan refuses to take back the check and issue one payable to the wife and the the bank refuses to accept the check for deposit to an IRA because the employee is dead how will the check ever be cashed? I am assuming that the check is payable to the IRA custodian as a direct rollover.

[jane123]

I will take that approach and let you know how it tunrs out.

Thanks

[GBurns]

Calling the bank and taking an answer from just anyone will usually get you a wrong answer. Make sure you talk to someone with authority, knowledge and the willingness to look into the matter and provide support of their position.