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Apr 1, 2007 12:00 PM
A Great New Option: The Nonspousal Rollover
The Internal Revenue Code and regulations allow a beneficiary of a pension plan to stretch out required minimum distributions (RMDs) over her life expectancy. This is an important tax benefit, because the beneficiary is taxed only on payments as she receives them. Despite these generous tax law provisions, many pension plans, for administrative convenience, require a beneficiary of a deceased plan member to take out the entire death benefit in a lump sum or over as little as five years, thus accelerating the beneficiary's income tax on the death benefit.
A spouse who is a beneficiary of a pension plan may avoid this unfavorable tax result by making a tax-free rollover to an individual retirement account (IRA) in her own name. Taxable payments from the IRA then can be taken over an extended period. The Pension Protection Act of 2006 (PPA) now allows a pension plan beneficiary who is not a spouse to make a similar tax-free rollover to an IRA and to stretch out taxable distributions from the IRA. Unfortunately, the Internal Revenue Service has complicated matters for some beneficiaries by limiting the time to make the rollover. It's also a pity that plans are not required to adopt the new rollover provisions, and many plans won't permit beneficiaries to take advantage of this option.
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| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
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