Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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not the participant’s surviving spouse, that distribution cannot be rolled over. It cannot be rolled back into the plan or IRA it came out of, or into any other plan or IRA. Not within 60 days, not within 60 seconds. Not to the beneficiary’s own IRA and not to an inherited IRA. This rule applies to every beneficiary who is not the participant’s surviving spouse, whether or not such beneficiary is a “Designated Beneficiary” ( ¶ 1.7.03 ). A nonspouse beneficiary’s taking a distribution from an inherited plan, even if accidental or unintentional, is a mistake that cannot be fixed; the IRS simply does not have the power to authorize the recontribution of the distributed amount to the same or another plan. See PLR 2005- 13032. The rule permitting nonspouse beneficiary rollovers ( ¶ 4.2.04 ) applies only to direct rollovers ( ¶ 2.6.01 (C)); it is not applicable when money is distributed to the beneficiary rather than being transferred directly to an inherited IRA. § 402(c)(9) , § 408(d)(3)(C) , Rev. Proc. 89-52, 1989- 1 CB 692, § 3.01. Here are the limitations on and quasi-exceptions to the above rule:  The above rule applies to distributions that occur after the death of the participant. For the executor’s possible ability to roll over distributions made prior to the participant’s death, see ¶ 4.1.04 .  For the ability of a surviving spouse, as beneficiary of the plan or IRA, to roll over distributions made to her, see ¶ 3.2. If the beneficiary is a trust or estate, but the surviving spouse is the beneficiary of the trust or estate, see ¶ 3.2.09 for the possible ability of the surviving spouse to roll over a distribution made to her “through” the trust or estate.  For the ability of nonspouse Designated Beneficiaries to effect a direct rollover of benefits from an inherited nonIRA plan to an inherited IRA, see ¶ 4.2.04 .  All IRA beneficiaries are permitted to do certain “IRA-to-IRA transfers”; see “B” below.  Finally, there is a “grandfather rule”: A nonspouse beneficiary who inherited an IRA from someone who died before 1985 could elect to treat the inherited IRA as the beneficiary’s own IRA. See 1987 version of Prop. Reg. § 1.408-8 , A-4; this grandfather rule is not mentioned in the final regulations. The nonspouse beneficiary of a participant who died after 1984 cannot do this. § 408(d)(3)(C) . B. Post-death IRA-to-IRA transfers permitted. Any IRA beneficiary (including an estate, a see-through trust, a non-see-through trust, a surviving spouse, and a nonspouse individual) can authorize a direct transfer from one IRA inherited from a particular participant to another “inherited IRA” of the same type (traditional or Roth) in the name of the same participant and payable to that same beneficiary. The IRS calls such transfers “trustee to trustee transfers.” This book calls them “IRA-to-IRA transfers.” See ¶ 2.6.08 . This rule applies to inherited IRAs only; a nonspouse beneficiary can NOT do a “trustee to