Inherited 401k – October 07 ruling

I noticed the IRS ruling of last week on the PPA change in making it mandatory for 401k plans to offer an inherited IRA to a non spouse beneficiary. I have a non spousal client who inherited a 401k in 2007 – Are they out of luck on the new rule? If so, what are their options for distribution?



They should be able to do the transfer as soon as they get the message and establish the new procedures. Prior to the IRS ruling, a plan had the choice to offer the transfer, but if they offered it there was no cutoff date for the date of death. The problem was that the transfer had to be done by 12/31 of the following year in order to get the life expectancy RMD for the beneficiary.

Since your client has until 12/31/08 to make the transfer that will preserve the stretch, that should provide plenty of time for the plan to change their procedure. I would follow up with them periodically starting in January. If the administrator is not a major player, you might even consider providing them a copy of the IRS ruling.



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