Trustee-To-Trustee Transfer Allowed From Deceased Individual’s Retirement Account To IRA Naming Non-Spouse Beneficiary

A tax-free trustee-to-trustee transfer from a qualified retirement plan (e.g., a §401(k) plan, a profit-sharing plan) to an IRA for the benefit of a non-spouse beneficiary is permitted for currently available for just IRA distributions and not for distributions from qualified plans. The transferee IRA will be treated as an “inherited IRA,” and the beneficiary will be subject to the same minimum required distribution rules as apply to any non-spouse beneficiary. Many qualified plans (e.g., profit-sharing plans and pension plans) require the distribution of amounts in an employee’s account within a certain period after the employee’s death. For example, some plans require a lump-sum distribution and others require distributions over 5 years. The new law does not allow a non-spouse beneficiary who receives a distribution from a decedent’s plan to roll it into an IRA. However, beginning in 2007, the non-spouse beneficiary may defer the tax by having the qualified plan trustee transfer the distribution directly to an IRA for the benefit of the non-spouse beneficiary, using a trustee-to-trustee transfer. In most cases, this will allow the beneficiary to distribute and pay tax on his or her share of the decedent’s account balance over the beneficiary’s life expectancy.

 

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