Life and Death Planning for Retirement Benefits

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154 Life and Death Planning for Retirement Benefits
Although it may be desirable for estate tax purposes, a presumption that the spouse survives
the participant will often produce bad results under the minimum distribution rules. In most cases,
the result of a presumption that the spouse survives in case of simultaneous deaths will be that
benefits must be distributed over the remaining single life expectancy of the spouse, or by the end
of the fifth year after the spouses’ deaths. See E), C).
3.2 Spousal Rollover; Election to Treat Decedent’s IRA as
Spouse’s IRA
Thi deals with the surviving spouse’s option to roll over, to another retirement plan,
retirement benefits left to her by her deceased spouse (the “participant”). explains what a
rollover is and the rules governing rollovers generally; this discusses additional rules and
considerations that apply to the rollover or Roth conversion of inherited benefits by a surviving
spouse.
When the surviving spouse inherits an IRA or Roth IRA as sole beneficiary, she has the
additional option to elect to treat it as her own; see
In this Chapter, spousal rollover generally means a rollover into the surviving spouse’s own
retirement plan; for rollover into another inherited plan, se
3.2.01 Advantages and drawbacks of spousal rollover
The surviving spouse’s ability to roll over inherited benefits to her own retirement plan
gives her a powerful option, not available to other beneficiaries, to defer plan distributions. For
one thing, she escapes a taxable lump sum payout from the plan, if that’s the plan’s only form of
death benefit (see #6, and . Also, by rolling over benefits to her own retirement
plan, the spouse becomes the “participant” or “owner” with regard to those benefits under the
minimum distribution rules. By taking distributions as owner, the surviving spouse gains the
following deferral advantages (A–C) compared with taking the benefits as beneficiary. See “D”
for the drawbacks and reasons NOT to rush into a spousal rollover.
The following discussion assumes the spouse rolls the inherited benefits over into an IRA
in her own name; rollovers into a nonIRA plan are not discussed in this book. For rollovers into
an “inherited” IRA, see
A. Slower rate of RMDs (longer ADP). The Applicable Distribution Period (ADP
for anyone (even the surviving spouse) who holds inherited benefits as beneficiary is the
beneficiary’s single life expectancy. B), (C), B), (C). Distribution over
the spouse’s life expectancy guarantees that the benefits will be entirely distributed out of
the plan by the time the spouse reaches (or would have reached) her late 80s. In contrast,
the surviving spouse’s RMDs from an IRA she holds as owner (participant) are determined
using the Uniform Lifetime Table , under which her ADP is the joint life
expectancy of the surviving spouse (as participant) and a hypothetical 10-years-younger
beneficiary. If benefits are left to the spouse outright and rolled over to her own IRA, and
she withdraws only the RMDs required under the Uniform Lifetime Table, the benefits are
guaranteed to outlive the spouse; in fact they will probably be worth more, when she
reaches her late 80s, than they were worth when she inherited the plan!