Death benefit to Non-Spouse Beneficiary - Tax Withholding

[HarleyBabe]

Well, clearly I am questioning my years of experience. I have a situation where the participant died and the children are the beneficiary, no spouse. The CPA instructed a distribution be made to cover some expenses with no withholding or they completed a W-4 to delay withholding until the personal returns are done. I believe they then deposited to a Trust for whatever reason. Not sure. They actually may have made the check to the Trust even. I haven't found that out yet. Regardless it's not an IRA of any kind.

Can someone please provide me the mandatory taxation rules for distribution to a non-spouse beneficiary. I have read the code, seems to indicate that if it's a non-spouse it's not considered an eligible rollover distribution and therefore not subject to the mandatory 20%. However when I look at every single financial institution distribution instructions, our own that have been used and many other things, they state 20%.

Help, and provide me a something to print for the correct answer meaning a code section. I must be missing something.

Thanks.

[GMK]

A non-spouse beneficiary can elect a rollover, but only to an inherited IRA.

So, it must be rollover eligible, and therefore, subject to 20% withholding if taken in cash.

Don't have cites handy.

[HarleyBabe]

Can someone find me the cite for that please!!!

[david rigby]

I have a situation where the participant died and the children are the beneficiary, no spouse. The CPA instructed a distribution be made to cover some expenses with no withholding or they completed a W-4 to delay withholding until the personal returns are done. I believe they then deposited to a Trust for whatever reason. Not sure. They actually may have made the check to the Trust even. I haven't found that out yet. Regardless it's not an IRA of any kind.

I assume you are the TPA and/or record-keeper. It also appears this is a DC plan. Correct?

Be careful about taking instructions from the CPA. It's unclear that person has any standing to give instructions. And be careful to follow the plan document w/r/t who and where a distribution is made.

[david rigby]

See IRC 408(d)(3).

[HarleyBabe]

Yes I am the TPA and it is a DC plan and I totally disagree with him but he believes one of his employees who thinks she is a pension professional. I am just tired of arguing with him.

[spiritrider]

A non-spouse beneficiary can elect a rollover, but only to an inherited IRA.

So, it must be rollover eligible, and therefore, subject to 20% withholding if taken in cash.

Don't have cites handy.

It is my understanding that assets of an an account inherited by a non-spouse beneficiary can only be moved to an inherited IRA by direct trustee-trustee transfer.

Any distribution to the beneficiary of such an account would not be rollover eligible and therefore, not subject to to withholding.

[Bird]

Section 108(f) of WRERA.

Ask the other person for a cite for her position.

[GMK]

for example, as discussed here:

http://benefitslink.com/boards/index.php/topic/40874-non-spouse-rollovers/

[HarleyBabe]

Yep I saw this in WRERA, unfortunately they still don't get it. I just wanted to make sure I wasn't missing something. I have ERISA counsel addressing this with them now as to why withholding applies.