Estate Planning

Congress Fails to Make Post-Death Non-Spousal IRA Rollovers Mandatory

By Gregory Herman-Giddens

I previously blogged that employers would be required to allow post-death non-spousal rollovers of their retirement plans to IRAs starting in 2008.  However, that did not come to pass:

This information is courtesy of attorney Phil Kavesh in California:

The IRS had previously announced that it would accept as part of the Technical Correction Bill to the Pension Protection Act of 2006 a provision that would require all corporate retirement plans to offer non-spouse beneficiaries a trustee to trustee lump sum rollover to an Inherited IRA, thereby allowing non-spouse beneficiaries to take advantage of RMD stretchout and avoid the one-year and five-year rules under most corporate retirement plans.

The Technical Corrections Bill recently passed did NOT include this provision and the IRS has decided not to move from its previous position that permitted each corporate retirement plan to decide whether or not to offer this rollover.  This development means that those with corporate retirement plans who have reached normal retirement age and can take an in-service distribution or have retired and left their money in the plan should consider rolling it out to an IRA now, so that non-spouse beneficiaries may take full advantage of RMD stretchout.  You may want to check the individual plan first, to see if it has been amended to allow the non-spouse rollover, as I anticipate that many plans will start to make this change over time.  If the plan has already made the change, a current rollover would not be necessary.  

For creditor, divorce and other protections for an inherited IRA, while still allowing the stretch, a standalone IRA/Retirement Plan Trust makes sense for most persons with retirement account values in excess of $200,000.  See my posting on IRA Trusts.

Full post as published by North Carolina Estate Planning Blog on January 08, 2008 (boomark / email).