Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

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contained in the designation of beneficiary form; see ¶ 1.7.02 . Such a presumption may be used, if the spouse’s estate is smaller than the participant’s, to equalize the estates for estate tax purposes. Although it may be desirable for estate tax purposes, a presumption that the spouse survives the participant will often produce bad results under the minimum distribution rules. In most cases, the result of a presumption that the spouse survives in case of simultaneous deaths will be that benefits must be distributed over the remaining single life expectancy of the spouse, or by the end of the fifth year after the spouses’ deaths. See ¶ 1.6.03 (E), ¶ 1.6.05 (C). 3.2 Spousal Rollover; Election to Treat Decedent’s IRA as Spouse’s IRA This ¶ 3.2 deals with the surviving spouse’s option to roll over, to another retirement plan, retirement benefits left to her by her deceased spouse (the “participant”). ¶ 2.6 explains what a rollover is and the rules governing rollovers generally; this ¶ 3.2 discusses additional rules and considerations that apply to the rollover or Roth conversion of inherited benefits by a survi ving spouse. When the surviving spouse inherits an IRA or Roth IRA as sole beneficiary, she has the additional option to elect to treat it as her own; see ¶ 3.2.03 . In this Chapter, spousal rollover generally means a rollover into the surviving spouse’s own retirement plan; for rollover into another inherited plan, see ¶ 3.2.07 . The surviving spouse’s ability to roll over inherited benefits to her own retirement plan gives her a powerful option, not available to other beneficiaries, to defer plan distributions. For one thing, she escapes a taxable lump sum payout from the plan, if that’s the plan’s only form of death benefit (see ¶ 1.2.01 , #6, and ¶ 1.5.10 ). Also, by rolling over benefits to her own retirement plan, the spouse becomes the “participant” or “owner” with regard to those benefits under the minimum distribution rules. By taking distributions as owner, the surviving spouse gains the following deferral advantages (A–C) compared with taking the benefits as beneficiary. See “D” for the drawbacks and reasons NOT to rush into a spousal rollover. The following discussion assumes the spouse rolls the inherited benefits over into an IRA in her own name; rollovers into a nonIRA plan are not discussed in this book. For rollovers into an “inherited” IRA, see ¶ 3.2.07 . A. Slower rate of RMDs (longer ADP). The Applicable Distribution Period (ADP; ¶ 1.2.03 ) for anyone (even the surviving spouse) who holds inherited benefits as beneficiary is the beneficiary’s single life expectancy. ¶ 1.5.03 (B), (C), ¶ 1.5.04 (B), (C). Distribution over the spouse’s life expectancy guarantees that the benefits will be entirely distributed out of the plan by the time the spouse reaches (or would have reached) her late 80s. In contrast, the surviving spouse’s RMDs from an IRA she holds as owner (participant) are determined using the Uniform Lifetime Table ( ¶ 1.3.01 ), under which her ADP is the joint life expectancy of the surviving spouse (as participant) and a hypothetical 10-years-younger beneficiary. If benefits are left to the spouse outright and rolled over to her own IRA, and she withdraws only the RMDs required under the Uniform Lifetime Table, the benefits are Advantages and drawbacks of spousal rollover