Rollover into a trust?

[Lori H]

A terminated participant is on disability and TnCare, neither of which she can afford to lose. She wants to know if the Pension Plan allows for the money to be rolled into a Trust (her son who is over 21 would be the Trustee.) If so, is there a tax liability at the end of the year or is there no tax as long as the money stays in the Trust. Of course, in the future when/if money is taken out she knows there would be tax.

My thoughts are the funds could be put into the trust, yet they would be taxable in doing so? Would this be the best option for her? I'm thinking she should just leave the money in the plan or roll it over.

[QDROphile]

Unless the distribution is rolled over to a qualified trust (a trust maintained in connection with a qualified retirement plan) or an IRA that is maintained as a trust, distribution to a trust will be taxable. Delivery of funds to a trust other than a qualfied trust or IRA is not a rollover. If you are a representative of the plan, you should not be discussing personal tax matters or financial planning with the participant. Your script about distributions is very narrow. You can find it in the SPD and the tax/rollover notice.

[masteff]

The grey line to be wary of is taking general information and applying it to someone's personal tax situation. Anything including the words "best option" should generally be avoided.

Given the person is in TnCare, I did a google search and found this link: http://www.tn.gov/sos/rules_all/2010/1240-03-03.20101029.pdf Based on page 14, it sounds like someone might have advised her to put the money in a "Miller trust" aka "qualified income trust or QIT" (not to be confused with a trust associated with a qualified plan).

If this is the type of trust being referred to, then because it is not a qualified plan or an IRA, it is not eligible to receive a rollover and therefore any distribution made to it will be taxable income (which is just repeating what the tax notice says). That is where you hit the grey line. Analysis beyond that point is likely to be tax advice. The participant will need to consult with other competent advisors to determine whether that is an appropriate choice for her to make. And the fact that it potentially impacts her eligibility for TnCare certainly puts it outside of what you should be willing to comment on.