Can UTMA custodians make rollover distributions?

[Guest Rissa]

Can a custodian designating as a beneficiary pursuant to the Uniform Transfers to Minors Act roll over an eligible distribution to an inherited IRA on the minor's behalf pursuant to IRC 402(2)(11)?

Any nonspouse designated beneficiary, as defined by I.R.C. section 401(a)(9)(E), who receives an eligible distribution from a qualified retirement plan can roll over the distribution to an IRA, which will then be treated as an inherited IRA. 26 U.S.C. 402©(11). Because only “designated beneficiaries” are eligible to roll over eligible distributions, the definition of “designated beneficiary” is the crux of this issue.

Section 401(a)(9)(E) defines “designated beneficiary” as “any individual designated as a beneficiary by the employee.” Treasury Regulation §1.401(a)(9)-4, Q&A-3 elaborates on the definition of “designated beneficiary” contained in section 401(a)(9)(E). It reads:

Q-3. May a person other than an individual be considered to be a designated beneficiary for purposes of section 401(a)(9)?

A-3. No, only individuals may be designated beneficiaries for purposes of section 401(a)(9). A person that is not an individual, such as the employee's estate, may not be a designated beneficiary. If a person other than an individual is designated as a beneficiary of an employee's benefit, the employee will be treated as having no designated beneficiary for purposes of section 401(a)(9), even if there are also individuals designated as beneficiaries. However, see A-5 of this section for special rules that apply to trusts and A-2 and A-3 of Sec. 1.401(a)(9)-8 for rules that apply to separate accounts.

Only individuals and trusts (which satisfy the requirements of Treas. Reg. §1.401(a)(9)-4, Q&A-5) are “designated beneficiaries” for purposes of I.R.C. section 401(a)(9). Therefore, only individuals and trusts may roll over distributions into an inherited IRA.

Any thoughts on whether an UTMA custodianship is an individual or a trust or neither?