Life and Death Planning for Retirement Benefits

Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries

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the beneficiary’s taxable account) by mistake, there is no remedy, because a nonspouse beneficiary cannot roll over a distribution—even if the distribution was made in error. See “A” above. If funds from an inherited IRA that are supposed to be transferred directly into another inherited IRA (in the names of the same deceased participant and beneficiary) are instead moved into the beneficiary’s own IRA, the transfer would not conform with the requirement recited in the PLRs “decided” under Rev. Rul. 78-406 (see “B” above). Such an erroneous transfer would presumably be treated as a taxable distribution to the beneficiary from the inherited IRA followed by a regular (probably excess; see ¶ 2.1.08 ) contribution to the beneficiary’s own IRA. See ¶ 4.2.04 (E). 4.2.03 Combining inherited IRAs For income tax purposes, IRAs inherited from one decedent are aggregated with (and only with) other IRAs of the same type (traditional or Roth) inherited from that same decedent; see ¶ 2.2.07 . For minimum distribution purposes, the minimum distribution is computed separately for each IRA, inherited or otherwise. Having computed the RMD separately for each account, however, an individual is entitled to take the RMD for all of certain “aggregate-able” IRAs from any one or more of the IRAs in that group. As with income taxes, the individual’s own IRAs may be aggregated only with each other for this purpose, and IRAs inherited from a particular decedent may be aggregated only with other IRAs inherited from that same decedent. Reg. § 1.408-8 , A-9. Based on these income tax and minimum distribution rules, it would appear that a beneficiary should be able to merge any traditional (or Roth) IRA inherited from a particular decedent with any other traditional (or Roth) IRA inherited from that same decedent, for convenience of management. However, there is no authority or guidance on this. See ¶ 4.2.04 (E). 4.2.04 Nonspouse beneficiary rollovers from nonIRA plans A nonspouse “Designated Beneficiary” (see “C”) can have funds transferred, by direct rollover (see “D”), from certain types of inherited nonIRA plans (see “B”) into an “inherited IRA” (see “E”) or inherited Roth IRA (see ¶ 4.2.05 ). A surviving spouse as beneficiary has more expansive options; see ¶ 3.2.07 . This ¶ 4.2.04 deals only with money that was still in the plan at the time of the participant’s death. For money that was distributed prior to the participant’s death, see ¶ 4.1.04 instead. If not certain when the distribution occurred, see ¶ 2.1.03 . A. Legislative background. Prior to the Pension Protection Act of 2006 (PPA ’06), the Code permitted no one other than the participant and his surviving spouse to “roll over” money from one retirement plan to another. PPA ’06 for the first time allowed a limited type of rollover by a Designated Beneficiary other than the surviving spouse. After 2006, a Designated Beneficiary is permitted to transfer certain inherited nonIRA plan benefits, by direct rollover only, into an “inherited” IRA. § 402(c)(11) . The main benefit of this type of transfer is that it allows a Designated Beneficiary to take advantage of a deferred “stretch” payout of the benefits over his life expectancy, even if the plan he actually inherited permitted only a lump sum distribution form of benefit. See ¶ 1.5.10 . In Notice