Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

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B. Roll to spouse’s IRA, use SOSEPP if money later needed . The spouse could roll all of the inherited money over immediately to her own IRA, to stop or prevent having to take RMDs as beneficiary if applicable, and to assure that the best possible distribution options will be available to her beneficiaries regardless of when she dies. If she later needs funds from the rollover IRA while she is still under age 59½, she can use the “series of substantially equal periodic payments” exception (¶ 9.2) to avoid the 10 percent penalty. C. Roll some to spouse’s plan, leave some in decedent’s plan. Estimate the spouse’s needs prior to age 59½, leave that amount in the deceased participant’s account (so she can withdraw it penalty-free), and roll over the rest to the spouse’s own IRA. D. Roll to an “inherited” IRA. If the spouse wants to leave the benefits in the decedent’s plan for a while, but the plan in question insists that the spouse must take a lump sum distribution of the benefits immediately ( ¶ 1.5.10 ), the spouse can roll over that distribution to an IRA in the name of the decedent, payable to her as beneficiary, in order to preserve its status as a penalty-free death benefit until such later time as she chooses to roll it over to her own plan. See ¶ 3.2.07 . If the participant’s benefits are left to his estate or a trust as beneficiary, the surviving spouse can roll over benefits that are paid to her as a beneficiary of the estate or trust, provided the spouse has, and exercises, the right to demand payment of the benefits to herself. There is no statute, regulation, or case stating this principle. Nevertheless, it is the IRS’s most longstanding, consistent, and logical position in the entire field of employee benefit distributions. Dozens of private rulings have affirmed this principle consistently since 1993. Yet in all that time the IRS has never stated the rule in any form that could be cited as precedent (such as a regulation or Revenue Ruling). In view of the longstanding consistent and clear IRS position as indicated by dozens of PLRs, IRA custodians may be willing to rely on an opinion of counsel in accepting spousal rollovers under these circumstances; this approach would save the surviving spouse substantial expense and delay (compared with having to obtain a PLR). The IRS has approved spousal rollovers with respect to every type of retirement plan covered by this book, through either an estate or trust or both, wherever the spouse has the right to the benefits, either because she is sole beneficiary of the estate or trust, or because she has the right to and does demand the benefits in fulfilment of her share; see “A.” However, if the spouse’s receipt of the benefits depends on the discretion of a third party , or on meeting a standard for distribution , then the rollover is not allowed; see “B.” If only some but not all of the benefits are subject to the spouse’s unfettered right to withdraw them, then only that portion is eligible for rollover; see “C.” For the legal basis for this IRS position, see “D.” If the participant has already died, leaving benefits to a trust that does not meet this standard, and the survivors want to have the benefits qualify for a spousal rollover, see ¶ 4.5 regarding ways to modify, invalidate, or otherwise sidestep the participant’s documents. There are a few rulings that deviate from these rules, always in favor of even more liberally allowing the spouse to do the rollover, but these should be regarded as anomalous; see PLRs 8920060, 1999-13048, and 2006-15032. Spousal rollover through an estate or trust