Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

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prenuptial agreement. If the client does not want the soon-to-be-spouse to have such rights, the client should consider taking the benefits out of the QRP and rolling them to an IRA (if the client is entitled to withdraw the benefits); though IRAs are subject to state-law spousal inheritance rights, those can generally can be negated in a prenuptial agreement.

Road Map: Advising the Surviving Spouse

Here are the options available to a surviving spouse who is named as beneficiary of the participant’s retirement benefits, either directly or through an estate or trust, and where to find the details on each alternative. For ease of reference, the participant is referred to as “he” and the surviving spouse as “she”; the same alternatives apply to the male surviving spouse of a female participant. A. Spousal rollover. The spouse can “roll over,” to another retirement plan, benefits left to her by the deceased participant. ¶ 3.2 explains the advantages and drawbacks of the “spousal rollover” ( ¶ 3.2.01 ), as well as its requirements ( ¶ 3.2.02 , ¶ 3.2.03 ) and deadlines ( ¶ 3.2.06 ); the types of plans from which ( ¶ 3.2.02 – ¶ 3.2.03 ) and into which ( ¶ 3.2.04 , ¶ 3.2.07 ) the spouse can roll over or transfer such inherited benefits; special considerations that apply if the surviving spouse is under age 59½ ( ¶ 3.2.08 ); when a spousal rollover is allowed for benefits that pass to the spouse through the participant’s estate or a trust ( ¶ 3.2.09 ); and the extent, if any, to which the surviving spouse’s executor can exercise a deceased surviving spouse’s rights to initiate or complete a rollover ( ¶ 3.2.05 ). B. Election to treat decedent’s IRA as spouse’s own IRA. See ¶ 3.2.03 regarding whether and how the surviving spouse can elect to treat an IRA or Roth IRA inherited from the deceased participant as the surviving spouse’s own IRA or Roth IRA. An election to treat an inherited Roth IRA as the spouse’s own enables the spouse to “carry over” the decedent’s holding period for purposes of computing her “Five-Year Period” (see ¶ 5.2.05 (B)), while a rollover to her own Roth IRA presumably would not give her that right. Except in that situation, there is no known planning reason to favor one approach over the other; rollover and spousal election have identical effects. C. Life expectancy payout to spouse as sole beneficiary. By leaving the benefits in the inherited plan (or rolling them over to an “inherited” IRA in the name of the deceased participant, ¶ 3.2.07 ), the surviving spouse can hold benefits as beneficiary rather than rolling them over to her own IRA or plan to hold them as “owner” (participant). For why a surviving spouse would choose to hold as beneficiary rather than as participant, see ¶ 3.2.01 (D). As long as she holds the benefits as beneficiary (whether because she positively chose to continue holding as beneficiary or because she simply did not yet get around to rolling the benefits over to her own plan), she is subject to taking required minimum distributions RMDs; see Chapter 1 ) as beneficiary. For when she must commence taking distributions as beneficiary, see ¶ 1.6.04 . For how to calculate a payout based on the life expectancy of the surviving spouse as sole beneficiary, see ¶ 1.6.03 (D). For how to calculate RMDs to the spouse’s successor beneficiaries if she dies while holding the account as beneficiary, see ¶ 1.6.03 (E) or ¶ 1.6.05 (C).

D. If spouse is one of multiple beneficiaries. Even if the surviving spouse is not the sole beneficiary of the account, she can still roll over distributions made to her as one of multiple