Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

trustee transfer” of benefits either to or from a nonIRA plan except as explained at ¶ 4.2.04 – ¶ 4.2.05 . IRA-to-IRA transfers are permitted because, under Rev. Rul. 78-406, 1978-2 C.B. 157, an IRA-to-IRA transfer is not considered a “distribution” or a “rollover.” An IRA-to-IRA transfer is not even a reportable event (unless combined with a Roth conversion); see IRS Instructions for Forms 1099-R and 5498 (2010), p. 5. Thus, an IRA-to-IRA transfer avoids several of the rules and prohibitions that apply to “60-day rollovers.” See ¶ 2.6.08 . Although Rev. Rul. 78-406 involved an IRA-to-IRA transfer by a living participant, it is cited by the IRS in letter rulings as being equally applicable “if the trustee to trustee transfer is directed by the beneficiary of an IRA after the death of the IRA owner as long as the transferee IRA is set up and maintained in the name of the deceased IRA owner for the benefit of the beneficiary.” PLR 2007-07158; see also, e.g. , PLRs 2002-23065, 2003-49009, 2006-16040, and 2006-47030. Because an IRA-to-IRA transfer is not a “rollover,” it is not subject to the prohibition against rollovers by a nonspouse beneficiary (see “A”). For an IRA-to-IRA transfer in connection with:  A post-death recharacterization of a pre-death Roth conversion, see ¶ 4.1.02 .  The transfer of an inherited IRA out of a trust or estate to the beneficiaries of the trust or estate, see ¶ 6.1.05 . Here are examples of other common types of IRA-to-IRA transfers that are carried out after a participant dies: Transfer to another IRA provider: Father dies, leaving his IRA at ABC Bank to Daughter. Daughter opens an “inherited IRA” at XYZ Brokerage Firm in the name “Daughter as beneficiary of Father,” and directs ABC Bank to transfer all the funds from Father’s IRA at ABC Bank directly into the new “inherited” IRA at XYZ Brokerage Firm. ABC issues a check for Father’s entire IRA balance payable to “XYZ Brokerage Firm, as Custodian of Father IRA, f/b/o Daughter as beneficiary.” (Before issuing the check, ABC may require Daughter to sign paperwork establishing an “inherited IRA” at ABC Bank; see ¶ 4.2.01 .) Daughter brings the check to XYZ Brokerage Firm which deposits the check into her newly created “inherited IRA.” Dividing among multiple beneficiaries: Mother dies leaving her IRA at DEF Mutual Fund Co. to her three children, A, B, and C. Upon learning of her death, DEF Co. retitles the account “Mother, deceased, IRA, payable to A, B, and C, beneficiaries.” That is not an IRA-to-IRA transfer; that is simply retitling the account to reflect Mother’s death. ¶ 4.2.01 . The children then request that the account be divided into separate accounts (see ¶ 1.8.01 ). DEF Co. creates three separate inherited IRAs, each one titled “Mother, deceased, IRA, payable to [one of the children] as beneficiary.” An equal-value amount of Mother’s IRA assets is moved via IRA-to-IRA transfer to each child’s separate inherited IRA. Each IRA provider may have its own procedures for these transfers dealing with such issues as whether it will: require the account to be converted to cash before being divided; allow the children to agree how assets will be divvied up among the three separate inherited IRAs instead of requiring equal allocation of each asset; and/or allow one child to peel off his share into a separate inherited IRA even if the other children don’t participate. C. What can go wrong. If, in the process of attempting to carry out an IRA-to-IRA transfer of an inherited IRA, the funds are distributed to the beneficiary ( i.e., money is deposited in