Spouse wants to keep death benefits in plan-- distributable event? 1099R?

[Guest Rissa]

If the beneficiary wishes to keep her deceased husband's account in the plan, does this become a distributable event if the account is transferred to her name/ss#? She is not a participant in the plan. 1099R issued? Thanks.

[J Simmons]

Not a distributable event, but I would in re-designating the plan account have some indication that she is a death beneficiary of [name of deceased participant], participant. Since it is not a distributable event, no 1099-R.

Check the plan's provisions to see how long she is allowed to leave the benefits in the plan, including RMDs based on her own age and life expectancy. Then calendar accordingly for later distribution.

[masteff]

1) What type of plan? DB, DC, ?

2) What does the plan document say?

Generally speaking, if it stays in the plan, then it's not a distributable event for tax reporting purposes. She simply becomes a restricted participant.

[Guest Rissa]

1) What type of plan? DB, DC, ?

2) What does the plan document say?

Generally speaking, if it stays in the plan, then it's not a distributable event for tax reporting purposes. She simply becomes a restricted participant.

It's a DC plan. The plan document gives the spouse beneficiary who elects to leave his/her death benefit in the plan all the same withdrawal options as a separated participant, except that he/she can't take hardship withdrawals or loans. The spouse benefiary can't make contributions to the spouse beneficiary accoutn because they are not participants in the plan, but they can make interfund transfers to allocate the investments of the money left in the plan.

Treas. Reg. 1.6047-1 says that amounts subject to reporting include "all amounts distributed or made available to which 402(a)...applies, whether or not such amounts are includible in gross income..."

Is it "made available" if the spouse beneficiary can make a full withdrawal at anytime?

But then Treas. Reg. 1.6041.2(b) says "Distributions under employees’ trust or plan. (1) Amounts which are: (i) Distributed or made available to a beneficiary, and to which section 402 (relating to employees’ trusts) or section 403 (relating to employee annuity plans) applies, or (ii) Described in section 72(m)(3)(B), shall be reported on Forms 1096 and 1099 to the extent such amounts are includible in gross income of such beneficiary if the amounts so includible aggregate $600 or more in any calendar year. (Emphasis added).

These Regs seem inconsistent to me.

Thanks for response!

[masteff]

Is it "made available" if the spouse beneficiary can make a full withdrawal at anytime?

No. No more than it's "made available" to any other participant after termination of employment / retirement.

[RTK]

Prior to ERTA in 1981, distributees (participants and beneficiaries) were subject to tax on plan amounts actually distributed or "made available" (i.e., distributees were taxed at actual and constructive receipt.) ERTA eliminated the taxation of amounts "made available" to distributees.

Without tracking the date(s) of the regulatory language at issue, I suspect that the language was issued before (and does not reflect) the ERTA change.