Life and Death Planning for Retirement Benefits

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Chapter 4: Inherited Benefits: Advising Executors and Beneficiaries 185
should seek a waiver of the penalty if appropriate. Se Unless the retirement plan
is actually payable to the estate, the executor is not in a position to take the missed
distributions out of the plan as a way of remedying the shortfall, which is a condition of
getting an IRS waiver of the penalty, because the beneficiaries control the account, even
though the executor (i.e., the probate estate) owes the penalty.
4.2 Post-Death Transfers, Rollovers, & Roth Conversions
Thi xplains how and to what extent a nonspouse beneficiary can do benefit transfers,
rollovers, and Roth conversions after the participant’s death. For a spouse beneficiary se
4.2.01 How to title an inherited IRA
During the participant’s life, the IRA will be titled “John Doe IRA,” “IRA of John Doe,”
or similarly. On the participant’s death, the ownership of the account automatically passes to the
participant’s beneficiary, by operation of the contract (the IRA agreement and beneficiary
designation form). At that point, the IRA becomes an “inherited IRA.” Some IRA providers use
the term “beneficiary IRA” or “ decedent IRA” for such accounts. Even though the account
“automatically” becomes an inherited/beneficiary/decedent IRA at the moment of the participant’s
death, some IRA providers reserve one or more of these titles exclusively for an account that the
beneficiary has opened to receive and/or hold death benefits payable to such beneficiary from a
decedent’s plan or IRA.
The step of correctly titling the inherited account is extremely important. Errors can easily
occur at this stage. It sometimes happens that, instead of simply updating the paperwork to show
that the account is now an inherited IRA, the parties succeed in distributing the entire account
balance, thereby causing immediate taxation of the entire amount and permanent loss of further
deferral (see A)), or depositing the funds in the nonspouse beneficiary’s own IRA (see
E)). The request to the IRA provider should be in writing and emphasize that you are
NOT requesting a distribution or rollover of the account at this time, merely informing them that
the account is now an inherited IRA.
In this book, “inherited IRA” means an IRA inherited by any beneficiary (including the
surviving spouse, and including a nonindividual such as an estate, trust, or charity). The IRS also
generally uses the term “inherited IRA” to mean an IRA held as beneficiary by anyone (even the
spouse); see Reg. § 54.4981A-T, A-d(10)(b), and Notice 2009-68, 2009-39 IRB 423; the IRS also
uses the term “beneficiary IRA” (see Notice 2008-30, 2008-12 IRB 638, A-7). (Of course, once a
surviving spouse rolls over the inherited IRA to her own IRA (or elects to treat the IRA she
inherited as her own IRA) (see , the account becomes “her” IRA and ceases to be an
“inherited” IRA in any sense.)