Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

If the participant died before his Required Beginning Date (RBD), and the 5-year rule applies ( ¶ 1.5.07 ), then there is no RMD until the year in which the fifth anniversary of the participant’s death occurs, but in that year the entire account becomes the RMD.” See ¶ 1.5.06 . If the inherited plan is an IRA of which the spouse is the sole beneficiary her failure to cash out the account by the end of that year would be deemed an election to treat the account as her own ( ¶ 3.2.03 (D), #3); otherwise, the deadline for completing the spousal rollover would appear to be December 31 of the year that contains the fourth anniversary of the participant’s death. See PLR 2002-42044, in which the spouse was allowed to roll over the balance of a decedent’s plan in the fourth year after his death. Note that if the participant died in any of the years 2004–2009 the “5- year rule” becomes the “6-year rule”; see ¶ 1.5.06 . Some plans and IRAs provide that the beneficiary of a participant who died before his RBD must elect to use the life expectancy payout method by a certain date, or else be defaulted into the 5-year rule; see ¶ 1.5.07 (A), #3. Thus, a surviving spouse of a young decedent could find herself defaulted into the 5-year rule years before she would have been required to take any distributions under the life expectancy payout method; see ¶ 1.6.04 . Since (except, apparently, in the case of an inherited IRA of which she is the sole beneficiary) this could mean she is stuck in the fifth year with a nonrollable distribution of the entire account, this once again illustrates the importance of studying the plan documents and the rollover-or-not decision, and having the spouse take the necessary actions to carry out her decision, as soon as possible after the participant dies. 3.2.07 Plans the spouse can roll benefits into The surviving spouse can roll benefits into any type of eligible retirement plan the deceased employee could have rolled into, including a QRP or IRA. § 402(c)(9) ; see ¶ 2.6.01 . Prior to 2002, a surviving spouse could roll over benefits inherited from the deceased spouse into an IRA but not into a QRP; Reg. § 1.402(c)-2 , A-12, has not been updated to reflect this change. This book covers only spousal rollovers into IRAs. For rollover (conversion) into a Roth IRA, see ¶ 3.2.04 . The spouse can roll the inherited benefits into her own IRA—either a pre-existing IRA that she already owns, or to a new IRA established to receive this rollover. She can establish an IRA just to receive the rollover, even if she is not herself eligible to contribute to an IRA; see, e.g. , PLR 2009-36049 (rollover of deceased spouse’s IRA into new IRA established to receive the rollover by a surviving spouse who was already over age 70½). There is no prohibition against her commingling any of her own pre-existing IRAs with any rollovers from the deceased participant’s plan, or from combining inherited benefits from multiple plans or IRAs left to her by the deceased participant. Once a surviving spouse rolls benefits over to her own IRA, she becomes the owner of the benefits (participant) in every way. Alternatively, the surviving spouse may roll the benefits into an IRA that is in the name of the deceased participant-spouse and payable to the surviving spouse as beneficiary (“inherited IRA”; see ¶ 4.2.01 ). See Notice 2009-68, 2009-39 IRB 423: “If you receive a payment from the Plan as the surviving spouse of a deceased participant, you have the same rollover options that the participant would have had ...In addition, if you choose to do a rollover to an IRA, you may treat the IRA as your own or as an inherited IRA.” See also Reg. § 1.408-8 , A-7, which provides that “If the surviving spouse of an employee rolls over a distribution from a qualified plan, such surviving spouse may elect to treat the IRA as the spouse’s own IRA ....” The fact that the spouse’s