Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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should seek a waiver of the penalty if appropriate. See ¶ 1.9.03 . Unless the retirement plan is actually payable to the estate, the executor is not in a position to take the missed distributions out of the plan as a way of remedying the shortfall, which is a condition of getting an IRS waiver of the penalty, because the beneficiaries control the account, even though the executor ( i.e., the probate estate) owes the penalty. 4.2 Post-Death Transfers, Rollovers, & Roth Conversions This ¶ 4.2 explains how and to what extent a nonspouse beneficiary can do benefit transfers, rollovers, and Roth conversions after the participant’s death. For a spouse beneficiary see ¶ 3.2 . 4.2.01 How to title an inherited IRA During the participant’s life, the IRA will be titled “John Doe IRA,” “IRA of John Doe,” or similarly. On the participant’s death, the ownership of the account automatically passes to the participant’s beneficiary, by operation of the contract (the IRA agreement and beneficiary designation form). At that point, the IRA becomes an “ inherited IRA .” Some IRA providers use the term “ beneficiary IRA ” or “ decedent IRA ” for such accounts. Even though the account “automatically” becomes an inherited/beneficiary/decedent IRA at the moment of the participant’s death, some IRA providers reserve one or more of these titles exclusively for an account that the beneficiary has opened to receive and/or hold death benefits payable to such beneficiary from a decedent’s plan or IRA. The step of correctly titling the inherited account is extremely important. Errors can easily occur at this stage. It sometimes happens that, instead of simply updating the paperwork to show that the account is now an inherited IRA, the parties succeed in distributing the entire account balance, thereby causing immediate taxation of the entire amount and permanent loss of further deferral (see ¶ 4.2.02 (A)), or depositing the funds in the nonspouse beneficiary’s own IRA (see ¶ 4.2.04 (E)). The request to the IRA provider should be in writing and emphasize that you are NOT requesting a distribution or rollover of the account at this time, merely informing them that the account is now an inherited IRA. In this book, “ inherited IRA ” means an IRA inherited by any beneficiary (including the surviving spouse, and including a nonindividual such as an estate, trust, or charity). The IRS also generally uses the term “inherited IRA” to mean an IRA held as beneficiary by anyone (even the spouse); see Reg. § 54.4981A-T, A-d(10)(b), and Notice 2009-68, 2009-39 IRB 423; the IRS also uses the term “beneficiary IRA” (see Notice 2008-30, 2008-12 IRB 638, A-7). (Of course, once a surviving spouse rolls over the inherited IRA to her own IRA (or elects to treat the IRA she inherited as her own IRA) (see ¶ 3.2 ), the account becomes “her” IRA and ceases to be an “inherited” IRA in any sense.)