RMDS for Inherited ROTH 401(k)

[ERISAAPPLE]

I thought the whole idea of inherited IRAs for non-spousal beneficiaries was the participant's beneficiary could roll the money over, e.g., from a 401(k) plan, to an inherited IRA.  Then, instead of being forced to receive the distribution from the plan under the plan's terms, the beneficiary could stretch out the payments under the Inherited IRA under the more friendly provisions allowed under the RMD rules, as opposed to the plan's rules.  For example, if the plan requires an immediate lump sum distribution on the participant's death, the non-spousal beneficiary could roll the money to an inherited IRA and take the money over the life expectancy of the beneficiary.  

Now that I re-read Notice 2007-7, Q&A-19, it seems the inherited IRA is required to follow the RMD rules that were in the plan from which the distribution was made.  Is that correct?  Thus, for example, if the plan requires the distribution to be made under the five-year rule, and doesn't allow for payments over the beneficiary's life expectancy, the inherited IRA must follow the 5-year rule.  Is that correct?

I am dealing with a Roth 401(k), but I don't think there is a difference between a pre-tax 401(k) or ROTH for this purpose.  The Roth 401(k) is subject to the RMDs and a Roth IRA is subject to RMDs at the participant's death.  

[Bird]

Without doing any research or reading this carefully (i.e. covering myself if anyone jumps on me for being wrong...) I think the idea is that if a beneficiary does not take an RMD by the time it would have been required under the annual distribution method, then they would be "stuck" with the 5 year rule in the plan, and that would carry over even if rolled out.  But if they take the money out of the plan before the first RMD under the annual method would have been required, they are free to do what they want in the IRA.

[ERISAAPPLE]

I guess the question I have is whether the beneficiary can take advantage of special rule in Q&A-17(c) after the rollover in Q&A-19.  It looks like Tripodi believes it does.  I can get there because Q&A-19 says  you apply the RMD that would apply under the plan, and under the plan the beneficiary is allowed to use Q&A-17.  

 

 

[Luke Bailey]

I believe in informal discussions at ABA and elsewhere IRS made it clear, subsequent to Notice 2007-7, that as long as the nonspousal rollover was made to IRA before end of year following year of death (i.e., before deadline for first RMD of nonspouse beneficiary under life expectancy method) the nonspouse beneficiary could elect to receive distributions from inherited IRA using life expectancy rule, regardless of whether employer plan would have made it available. That is literally what Q&A-17(c)(2)(A) of Notice 2007-7 says, but I think it was overshadowed by the seemingly more restrictive language of Q&A-19.

[ERISAAPPLE]

Thanks Luke.  I found the same answer in an Employee Plan Newsletter.  https://www.irs.gov/pub/irs-tege/se_021307.pdf

I guess I wasn't the only one who was confused by this.  

[Luke Bailey]

OK, thanks ERISAApple. I recall the clarification in newsletter now.