What distribution options do children (under 18) have after participan

[Guest John Sample]

We are a TPA firm and I administer a qualified plan where a participant died at age 51, and was not taking plan distributions at the time of his death. His designated beneficiaries are his two children, ages 13 and 15. The children's tax advisor has asked the plan to rollover their benefits into "Custodial Inherited IRA's" for each child.

I do not believe that non-sopuse benefitiaries could rollover qualified plan benefits - IRC 401©(9) and

408(d)(3)©. I also looked at the 300 postings in the Distribution Q & A column and I could not find this situation specifically addressed. I did find that questions 156 and 222 address this situation for IRA's. Does the IRS look at qualified plans like IRA's in this situation?

To summarize, what distribution options do non-spouse beneficiaries (in this case minor children) have when inheriting a Qualified Retirement Plan benefit following the death of their parent, who was not in "pay status" at the time of his death?

Thank you.

John Sample, QKA

[Mary Kay Foss]

I agree with you; I've never heard of a custodial inherited IRA. Your plan document will control what happens. The proposed regs mention 2 choices, the five-year rule or life expectancy.

The life expectancy option is common in IRAs but I've never seen it in a 401(a) plan. The five-year rule is the default, if the plan allows it.

If the decedent would have rolled his benefits to an IRA before he died, inherited IRAs would be possible but only if the custodian allowed subaccounts (so each child could have his or her own account) and if the custodian would accept a life expectancy election from a minor. Sometimes a court appointed guardian is needed to make such an election.

As always when we get to these postings, the answer is:

What does the document say?

[Guest John Sample]

Thank you for your reply. However, your comment "As always when we get to these postings, the answer is: What does the document say" was unnecessary. What do you mean by "these postings" and who do you include as "we", are you speaking for everyone on benefitslink?

I know what the document says and I know that if the decedent would have rolled his benefits into an IRA I would not be asking this question. However since he was only 51, still working, and not anticipating death, he just didn't think of rolling over his benefit.

Has anyone applied the reasoning behind Private Letter Rulings 9106044, 9106045, and 9623037 to a Qualified Plan distribution using the same circumstances? I know that PLRs cannot be relied on and are for the specific request only (I need to state this so the next reply doesn't state that I cannot rely on a PLR), however, I have gotten answers that you can and cannot do what the attorney is requesting, so I am trying to point the Trustee of the plan in the proper direction.

Thank you.