How Spousal Rollover IRAs Allow Estate Holder to Reduce Required Minimum Distribution from a Defined Contribution Plan

Depending on the terms and conditions of a defined contribution plan, a participant may elect to extend the tax-deductible life of those assets by transferring them to an estate or trust prior to death. A key incentive for extending the distribution period of defined contribution plan assets is transfer of tax-deductible eligibility to beneficiaries of an estate or trust. Surviving spouses can consider a Spousal Rollover Independent Retirement Account (“IRA”) to shelter beneficiary distribution of those assets after the death of a defined contribution plan participant.


Required Minimum Distributions

The ratio of required minimum distributions (“RMDs”) from a defined contribution plan is generally more favorable in treatment during an estate holder’s lifetime. RMDs can be calculated during a participant’s lifetime, and initially based on a distribution period specified by the Uniform Lifetime Table.


If a participant’s beneficiary is a spouse 10-years younger in age or more, the distribution period can be calibrated to the Joint and Last Survivor Table, which prolongs the distribution period. On death, RMDs are subject to Single Life Table distribution period limits.


Beneficiaries who are not spouses are generally restricted from extending the distribution period with the designation of another beneficiary. Designated beneficiaries may also sustain higher than expected capital gains as result of required minimum payout and are also prevented from extending the distribution of those assets after their own deaths.


Spousal Rollover IRAs

Surviving spouses benefit from a special rule permitting establishment of a spousal rollover IRA which treats the surviving spouse as an existing participant of the plan. An IRA allows a surviving spouse participant to transfer the value of a defined contribution plan to their own account or withdrawal of the full amount without penalties.


Designation of a beneficiary who may also qualify under the extended payout rule protects those assets from future capital gains taxation. RMD is accorded the distribution period defined by the Uniform Lifetime Table during the spouse’s lifetime.


Remarriage of the spouse to an individual younger than 10 years or more in age allows a surviving spouse with an IRA account holding the inherited the assets of a decedent spouse’s defined contribution plan, to extend the distribution period by making the new spouse a beneficiary. The distribution period in such a case is assigned according to the Joint and Last Survivor Table.

The federal Internal Revenue Service (“IRS”) Publication 590-B (2017), Distributions from Individual Retirement Arrangements (IRAs), provides guidelines to spousal rollover IRAs and RMD associated with defined contribution plan benefits. A licensed attorney specializing in estate and probate law can provide client advisory of defined contribution plan benefit transfer to an IRA for inclusion in an estate plan or will.


Contact an Estate Planning Lawyer

Ettinger Law Firm is a licensed New York attorney practice, specializing in estate planning and probate litigation. Contact Ettinger Law Firm for consultation in an estate planning matter.    

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