Inherited IRA

[Pension RC]

A plan participant just passed away and there is a non-spouse beneficiary. Assuming that the survivor benefit will be rolled over to an inherited IRA, is there any time limit on how quickly this rollover needs to occur (other than the 12/31/2017 distribution deadline of the first RMD)?

Any responses would be appreciated!

[GMK]

Several factors are involved, some of which depend on what the Plan document says.

For example, the plan may allow/require a force out distribution if the account balance is $1000 or less, or in some cases $5000 or less.

Assuming a larger balance, the options may depend on whether the participant died before or after the participant's Required Beginning Date (RBD).

Briefly, as I understand it, if the participant died before the RBD, then the non-spouse beneficiary who does not take the distribution now has the option to use the life expectancy rule or the 5-year rule. Since the participant died in 2016, the beneficiary has to decide which rule applies by September 30, 2017. Under the life expectancy rule, the beneficiary begins taking distributions by December 31, 2017. Under the 5-year rule, the beneficiary can choose when and if to take a distribution for 5 years, but the entire balance must be distributed by December 31, 2021 (5 years after year of participant's death).

If the participant died after the participant's RBD, then the participant's RMD for 2016 must be paid (to the beneficiary) in 2016. Then the non-spouse beneficiary who does not take the distribution has the option to use the life expectancy rule (with payments starting by December 31, 2017) and may also have the option to use the 5-year rule, but this will depend on whether the plan allows it. Check the Adoption Agreement to see if beneficiaries are given the option to use the 5-year rule when the participant dies after the RBD. Again, if the 5-year rule is an available option, the beneficiary has until September 30, 2017, to choose the life expectancy or 5-year rule.

A couple references that might be useful:

https://www.irs.gov/pub/irs-tege/epchd603.pdf

http://www.obliviousinvestor.com/inherited-ira-rules/

[QDROphile]

Yes, there is a deadline for a nonspouse beneficiary to roll over the distribution of the death benefit if the beneficiary wishes to use the lifetime method of distribution from the IRA: end of the year following the year of participant's death. That is not the plan's concern.