401k rollover to spousal IRA

[t.haley]

FACTS: participant takes early withdrawal from 401k plan and does a direct rollover into an IRA. Based on the documentation, the IRA that accepted the rollover is owned solely by the participant's wife.

Is this a valid rollover/IRA contribution? I have taken for granted that a direct rollover from a 401k plan can only be made to an IRA that is owned by the plan participant. However, I cannot find any statutory authority for this. Everything I have read states that you can rollover over a 401k distribution to "an IRA". I have found discussions on contributions to spousal IRAs but nothing specific about the source of the contribution. Any revelations on this subject would be greatly appreciated!

[Lou S.]

Unless there is QDRO assigning the benefits to the spouse, it would a violation of the anti-alienation provisions of 401(a)(13) to pay the benefits of the participant to the spouse (or her IRA).

[t.haley]

Thanks Lou S. - to my knowledge there is no QDRO. There are some disrepancies in the IRA paperwork that make me think "no one was at the helm" when this rollover was done in 2007. The application for the IRA shows husband and wife joint owners (not allowed for a qualified IRA); however the actual IRA paperwork issued shows the wife as the sole owner. In the 401k distribution paperwork the participant directed the plan to rollover his account to a "New IRA" and the check was made payable to the IRA provider "for the benefit of" the participant. Lots of issues and incomplete records. My present issue is the wife is claiming the IRA as exempt in bankruptcy. Under state law, it is exempt if it is a "qualified" IRA. Given these circumstances, I'm not sure if the original rollover was proper in the first place. How does this affect the qualified status of the IRA now?

[Mike Preston]

Hie thee to a tax attorney familiar with retirement plan rules!!!!