When You Inherit a Retirement Plan
Nonspouse beneficiaries have new payout options
If you are the beneficiary of a decedent’s qualified retirement plan,
and you are not the spouse of the decedent, you now have additional
options for distributions.
In the past, only a spouse beneficiary was permitted to roll the
account into an IRA. Now, beginning in 2007, if you are the beneficiary,
you may roll the distribution into an IRA that has been established to
receive the qualified plan.
Under this new option, you will be subject to the rules for distributions
that apply to inherited IRAs, as opposed to the more strict rules that
apply to distributions from qualified plans. Many qualified plans require
beneficiaries to take the entire amount from the plan within five years of
the date of death.
The rules that apply to inherited IRAs allow the beneficiary to take
distributions over his or her life expectancy, thus spreading the tax
liability over several more years.
If the decedent was over age 70½, the distribution rules are a bit
different. Here you have the option of taking the distributions from the
inherited IRA over your life expectancy, or the remaining life expectancy
of the owner, assuming he or she was still living.
