non spousal thrift plan rollover
I have a 22 year old who I am working with who;
1) his father died last summer at age 44,
2) father participated in thrift plan and had a $500k balance,
3) father didn’t have beneficiary listed,
4) account is currently titled as ‘sons name’ estate of ‘deceased name’,
5) the account is no longer under ss# of father, rather an estate ein #,
6) father had 3 children, who have equal interest in account,
7) ex-employer has indicated that there are only 2 choices from their perspective, either leave funds in account and continue tax deferral or take lump sum distribution of entire amount.
The son and his siblings would be best off if they were able to roll account into an IRA, but it doesn’t appear that they can do that. Does anyone have any guidance on options that the beneficiaries of the estate could consider, other than the two mentioned above?
Permalink Submitted by Al Fry on Mon, 2007-10-22 19:24
The Plan Administrators may not be aware that allowing a “Direct Rollover” to an inherited IRA for non-spouse benes will become mandatory in 70 days, however they’ll have until 1-1-2009 to amend their plan. Of course in this case, apparently the estate is the bene. If they could get someting from the probate court to assign the DB to the individuals, they may have a chance.
Permalink Submitted by Alan Spross on Mon, 2007-10-22 19:53
Is this the federal TSP plan?
Their website indicates that the estate is not the default beneficiary, but an order of precedence is apparently stated in the agreement, with children following the spouse. This does not square with the estate being the default beneficiary, nor with the lack of a designated beneficiary.
This is vital since an estate beneficiary cannot be considered a designated beneficiary, and the PPA non spouse rollover is limited to designated beneficiaries. Further, if the order of precedence applies, the sons should qualify as designated beneficiaries, should be able to create separate accounts, and use their own life expectancies to stretch the RMDs.
Since the plan seems to be proceeding differently, please confirm whether this is the TSP or not.
Permalink Submitted by Roger Linder on Wed, 2007-10-24 21:56
It isn’t a federal plan. The plan is for a utility company. They are looking into it further, but I appreciate the feedback. It may be that if client waits to take the distribution, they may be able to roll into an inherited IRA. Also, someone mentioned to me that it would be unlikely that the plan can allow indefinate deferral. Even if it does, the beneficiaries are likely to choose to take the distribution as they are not wealthy and none of them are making over 20k annually.
Permalink Submitted by Alan Spross on Thu, 2007-10-25 04:12
The non spouse transfer to an IRA only applies to eligible retirement plans under Secs 401, 403 and 457. Many “thrift plans” are basically stock purchase plans, therefore you may have to rely on the plan documents to determine the rollover or distribution options. Tax status is also obviously critical, since much of the balance may be after tax.