Life and Death Planning for Retirement Benefits

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186 Life and Death Planning for Retirement Benefits
Someone notifies the IRA provider of the participant’s death. The IRA provider then
typically has the beneficiary sign a new account agreement, appropriate to an “inherited IRA,” and
retitles the account accordingly. See Rev. Proc. 89-52, 1989-2 CB 632, and Notice 2007-7, 2007-
5 IRB 395, A-13. An inherited IRA (or plan account) should be titled so as to make clear that it is
an inherited account, and to indicate the names of the both the beneficiary (who now owns it) and
the deceased participant (whose account it originally was). For example:
Individual: If the beneficiary is an individual, the inherited IRA or plan account could be titled
“John Doe, deceased, f/b/o Junior Doe,” or “Brian Young as beneficiary of Joan Smith” (see Rev.
Proc. 89-52, § 3.01) or similarly.
Estate: For an IRA or plan account that is payable to the deceased participant’s estate, the titling
could be “John Doe, f/b/o Estate of John Doe,” or “XYZ Bank, Executor of the estate of John Doe,
as beneficiary of John Doe,” or something similar.
Trust: An IRA or plan account held by a trust as beneficiary could be titled “John Doe, f/b/o John
Doe Testamentary Trust,” or “XYZ Bank, Trustee of the John Doe Revocable Trust, as beneficiary
of John Doe,” or similarly.
The IRS requires the IRA provider to show the name of the decedent, as well as the name
and taxpayer identification number of the beneficiary, when reporting the value of and
distributions from an inherited IRA. Rev. Proc. 89-52, § 3.01; see Instructions for IRS Forms 1099-
R and 5498 (2010), p. 15.
See B) regarding preserving the option of disclaimer by the beneficiary when
retitling the account.
4.2.02 Post-death distributions, IRA-to-IRA transfers
For definitions of (and differences among) “direct rollovers,” “60-day rollovers,” and
“IRA-to-IRA transfers,” see
A. Nonspouse beneficiary cannot roll over a distribution received. If, after the
participant’s death, the retirement plan or IRA makes a distribution to a beneficiary who is
Inherited IRA: No Code Definition
The Internal Revenue Code does not define “inherited IRA.” The Code provides that
“in the case of an inherited” IRA, distributions from the account may not be rolled over (and
rollover contributions may not be accepted) But instead of defining inherited
IRA, says only that an IRA “shall be treated as inherited if-- (I) the individual
for whose benefit the account or annuity is maintained acquired such account by reason of
the death of another individual, and (II) such individual was not the surviving spouse of such
other individual.” Emphasis added. All this sentence tells us is that, for purposes of the rule
that rollovers are not allowed for inherited IRAs, an IRA held by the surviving spouse as
beneficiary is NOT treated as an inherited IRA. The rule does not mention IRAs held by
nonindividual beneficiaries, because the rule allowing rollovers of IRA distributions
only applies to distributions to the individual for whom the account is
maintained.