SIP beneficiary question

[Guest LuckyDuck]

Last year my Dad passed away and named me the beneficiary of a SIP plan. At the end of the year, they sent an automatic distribution. I had planned to keep it in place as a retirement plan for myself, but just received a check for the balance less 20% withheld for Fed tax and 6% withheld for state tax. Plan admins told me that plan rules required closing after 180 days. Question is: 1)could I have rolled this entire amount into another qualified plan for myself with no taxable event? 2) Can I take the balance I received and roll it into another qualified plan without creating another taxable event?

[ETA Consulting LLC]

If they withheld 20%, then they should've given you an option to directly roll the distribution over into an inherited IRA. They can say the plan rules require them to remove it from that plan, but those rules do not require that you take a taxable distribution in cash. You should've been given an opportunity to roll it over.

By SIP, I am assuming you mean "Savings Incentive Plan" which is an arbitrary name. It does appear to be a qualified plan since they withheld 20%. They should correct this and provide you with the options you shoud've been given prior to that distribution being made.

Good Luck!

[masteff]

LuckyDucky - So after your dad's death, I presume you or someone contacted the plan and they likely sent out paperwork to you and any other beneficiaries. Do you still have that paperwork? Does it contain something that has a title like "Special Tax Notice"? Their citing a 180 day time limit makes me think they sent you the "Special Tax Notice", which they were required to do as per IRS Notice 09-68.

While ETK is generally correct, I suspect you already received your opportunity to make an election and failed to realize that a distribution wasn't optional. If you still have that paperwork and it really is confusing and doesn't explain at all that you had to make a choice or else the money would be sent automatically, then you could try filing a claim with the plan. (You'd need to ask the plan for a copy of their ERISA claims procedure.)

The reason they never contacted you again after that initial paperwork is that IRS Reg 1.417(e)-1(b)(1) says in part: "After the participant's death, a benefit may be paid to a nonspouse beneficiary without the beneficiary's consent." Meaning, they didn't need your permission to distribute the money.

Note that a nonspouse beneficiary can only do a rollover from a qualified plan by a "direct rollover". Meaning that you cannot do anything to fix it yourself (by rolling it over now). You don't mention whether your dad was or would now be over age 70 1/2; if so then some portion of the money would be a minimum required distribution and would not be eligible for rollover.

[GMK]

Good advice above.

Just to add that the "Special Tax Notice" may be entitled "Your Rollover Options"

[Guest LuckyDuck]

THANKS !! ! !