May a nonspouse beneficiary of a participant who died prior to 2006 use the new nonspouse beneficiary rollover rules?

May 15, 2007
Correction of Article of May 3, 2007

Marjorie Hoffman confirmed to McKay Hochman today, that the special rule which permits a beneficiary in a plan with only the five-year rule to nonetheless choose the life expectancy method of distribution once the funds are directly rolled into the inherited IRA [Notice 2007-7 Q&A 17(c)] is what she had actually stated was not available for beneficiaries of participants who died before 2006.

The reason why this option is not available is because the deadline for a beneficiary to choose the life expectancy method is the end of the year after the participant's death; and thus, in 2007, for participants who died before 2006, the deadline for the beneficiary to choose the life expectancy method has already passed.

Ms. Hoffman also stated that if a beneficiary was taking life expectancy payments from a plan for a participant who had died prior to 2006, the beneficiary may directly roll the remaining amount, less the minimum for the year of the direct rollover, to an inherited IRA. This is possible, of course, if the plan permits the direct rollover by non-spouse beneficiaries to inherited IRAs.

In addition, a beneficiary of a participant who died in 2004, 2005 or 2006 in a plan that permits the five year rule, may directly roll the amount to an inherited IRA and continue the five year rule, again, provided the plan permits direct rollovers by non-spouse beneficiaries to inherited IRAs. Keep in mind that a nonspouse beneficiary may only directly roll over to an inherited IRA in the first four years after the participant's death and may not rollover in year five.

We deeply apologize for not quoting Marjorie Hoffman correctly in our article of May 3rd.