News Releases

IRS Changes Position on Non-Spouse Beneficiary Rollovers from Plans
October 24, 2007

IRA Update from Ed Slott

October 24, 2007

IRS Changes Position on Non-Spouse Beneficiary Rollovers from Plans

Beginning in 2008, plans MUST allow direct rollovers for beneficiaries

The Pension Protection Act of 2006 included a provision that would permit non-spouse plan beneficiaries to do direct transfers from the plan to a properly titled inherited IRA and take stretch distributions over their lifetimes instead of being subject to the harsh payout rules of most company plans. This provision became effective in 2007.

The purpose of the provision was to allow non-spouse plan beneficiaries the same ability to stretch post-death distributions over their lifetime as if they inherited from an IRA. That was the plan. But in January 2007, IRS issued Notice 2007-7 which stated that the provision was not mandatory for plans. This created confusion and controversy and took the wind out of sails of this provision. This was contrary to what Congress intended. Congress realized this and has proposed a technical correction to the law stating that the plans MUST allow the non-spouse direct rollover to an inherited IRA.

In light of the pending Congressional technical correction, IRS reversed its position and now says that the non-spouse rollover provision will be mandatory beginning in 2008.

IRS posted the change on its website

Here is the link:

http://www.irs.gov/retirement/article/0,,id=173372,00.html

Or click here:

2007 Interim and Discretionary Amendments

§ 402(c)(11) [Discretionary]:
PPA ’06 § 829(a)(1) added § 402(c)(11) to allow nonspouse beneficiaries to roll over distributions from a qualified plan to an individual retirement plan.Nonspouse beneficiary rollovers are an optional plan provision for 2007.See, Notice 2007-7.Pursuant to an impending technical correction, nonspouse beneficiary rollovers will be required for plan years beginning on or after January 1, 2008 (emphasis added).See, section 9(e) of S. 1974, the Pension Protection Technical Corrections Act of 2007, as introduced in the Senate on August 2, 2007 and section 9(e) of H.R. 3361, the Pension Protection Technical Corrections Act of 2007, as introduced in the House of Representatives on August 3, 2007

-by Ed Slott, Copyright © 2007

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Ref: Alert 10-23-07 Non-Spouse Rollover

October 24, 2007

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