Life and Death Planning for Retirement Benefits

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160 Life and Death Planning for Retirement Benefits
If the participant died before his Required Beginning Date (RBD), and the 5-year rule
applies , then there is no RMD until the year in which the fifth anniversary of the
participant’s death occurs, but in that year the entire account becomes the RMD.” See If
the inherited plan is an IRA of which the spouse is the sole beneficiary her failure to cash out the
account by the end of that year would be deemed an election to treat the account as her own
D), #3); otherwise, the deadline for completing the spousal rollover would appear to be
December 31 of the year that contains the fourth anniversary of the participant’s death. See PLR
2002-42044, in which the spouse was allowed to roll over the balance of a decedent’s plan in the
fourth year after his death. Note that if the participant died in any of the years 2004–2009 the “5-
year rule” becomes the “6-year rule”; see
Some plans and IRAs provide that the beneficiary of a participant who died before his RBD
must elect to use the life expectancy payout method by a certain date, or else be defaulted into the
5-year rule; see A), #3. Thus, a surviving spouse of a young decedent could find herself
defaulted into the 5-year rule years before she would have been required to take any distributions
under the life expectancy payout method; see Since (except, apparently, in the case of an
inherited IRA of which she is the sole beneficiary) this could mean she is stuck in the fifth year
with a nonrollable distribution of the entire account, this once again illustrates the importance of
studying the plan documents and the rollover-or-not decision, and having the spouse take the
necessary actions to carry out her decision, as soon as possible after the participant dies.
3.2.07 Plans the spouse can roll benefits into
The surviving spouse can roll benefits into any type of eligible retirement plan the deceased
employee could have rolled into, including a QRP or IRA. see Prior to 2002,
a surviving spouse could roll over benefits inherited from the deceased spouse into an IRA but not
into a QRP; Reg. A-12, has not been updated to reflect this change.
This book covers only spousal rollovers into IRAs. For rollover (conversion) into a Roth
IRA, see
The spouse can roll the inherited benefits into her own IRA—either a pre-existing IRA that
she already owns, or to a new IRA established to receive this rollover. She can establish an IRA
just to receive the rollover, even if she is not herself eligible to contribute to an IRA; see, e.g., PLR
2009-36049 (rollover of deceased spouse’s IRA into new IRA established to receive the rollover
by a surviving spouse who was already over age 70½). There is no prohibition against her
commingling any of her own pre-existing IRAs with any rollovers from the deceased participant’s
plan, or from combining inherited benefits from multiple plans or IRAs left to her by the deceased
participant. Once a surviving spouse rolls benefits over to her own IRA, she becomes the owner
of the benefits (participant) in every way.
Alternatively, the surviving spouse may roll the benefits into an IRA that is in the name of
the deceased participant-spouse and payable to the surviving spouse as beneficiary (“inherited
IRA”; see . See Notice 2009-68, 2009-39 IRB 423: “If you receive a payment from the
Plan as the surviving spouse of a deceased participant, you have the same rollover options that the
participant would have had ...In addition, if you choose to do a rollover to an IRA, you may treat
the IRA as your own or as an inherited IRA.” See also Reg. A-7, which provides that
“If the surviving spouse of an employee rolls over a distribution from a qualified plan, such
surviving spouse may elect to treat the IRA as the spouse’s own IRA ....” The fact that the spouse’s