Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

175

§ 402(c)(1) allows a participant in a qualified retirement plan (QRP) to roll over certain plan distributions to another QRP, or to any other eligible plan, if various requirements are met. ¶ 2.6.01 (B). If death benefits are paid to the participant’s surviving spouse, the rollover rules “apply to such distribution in the same manner as if the spouse were” the participant. § 402(c)(9) . Whatever rollover options the deceased participant had, the surviving spouse has the same options. Reg. § 1.402(c)-2 , A-12(a). § 403(b)(8) permits rollovers by a 403(b) plan participant, and (by “importing” § 402(c)(9) ) also permits rollovers by the participant’s surviving spouse. § 403(b)(8)(B) ; Reg. § 1.403(b)-2 . See PLRs 9713018, 2001-01038, 2002-10066, 2002-49008, 2003-14029, 2003-17040, and 2009- 36049 for examples of spousal rollovers of 403(b) benefits. The Code does not permit the surviving spouse to elect to treat a 403(b) plan as the spouse’s own plan; § 403(b) has no provision comparable to § 408(d)(3)(C) ; Reg. § 1.403(b)-3 , A-1(c)(2). Contrast IRAs ( ¶ 3.2.03 ). There is no requirement that the surviving spouse be the sole beneficiary of the account to be entitled to the spousal rollover; she can roll over a distribution made to her even if she is one of multiple beneficiaries. See, e.g. , PLRs 2004-49041–2004-49042. The tests for determining whether a distribution is an “eligible rollover distribution,” and other rollover rules, are the same for the surviving spouse as they would have been for the deceased participant. The same rules apply regarding the direct rollover option ( ¶ 2.6.01 (C)) and mandatory income tax withholding ( ¶ 2.3.02 (C)). The distribution does not have to be the entire account balance; partial distributions are eligible for rollover, unless they are RMDs or part of a series of substantially equal payments ( ¶ 2.6.02 ). § 408(d) , in a backhanded way, permits a surviving spouse to treat the deceased spouse’s IRA (including a Roth IRA) that is payable to her as beneficiary as if it were the spouse’s own IRA (or Roth IRA). A. Spousal election: Code and regulations. The Code provides that distributions from an “inherited IRA” may not be treated as tax-free rollovers, but then says that for this purpose an “inherited IRA” does not include an IRA inherited by the surviving spouse. § 408(d)(3)(C) . Thus by negative implication the surviving spouse may roll over distributions she receives from the deceased participant’s IRA. (Note: In this book, “inherited IRA” means an IRA held by any beneficiary. See ¶ 4.2.01 .) Reg. § 1.408-8 , A-5(a), provides that “The surviving spouse of an individual may elect...to treat the spouse’s entire interest as a beneficiary in an individual’s IRA (or the remaining part of such interest if distribution thereof has commenced to the spouse) as the spouse’s own IRA.” The effect of such an election with respect to a traditional IRA inherited by the surviving spouse is that subsequent RMDs are “determined under section 401(a)(9)(A) with the spouse as IRA owner and not section 401(a)(9)(B) with the surviving spouse as the ...beneficiary.” See ¶ 1.6.03 (B) for how to calculate RMDs when the spouse elects to treat an inherited traditional IRA as her own. B. Spousal election for inherited Roth IRA. If the surviving spouse as sole beneficiary of the deceased participant’s Roth IRA elects to treat the Roth IRA as her own, then “the Roth IRA is treated from that date forward as though it were established for the benefit of the surviving spouse and not the original Roth IRA owner.” Reg. § 1.408A-2 , A-4. Emphasis Rollover (or spousal election) for IRA or Roth IRA