In response to complaints that wasn’t Congress’ intent, the IRS indicated that it would make the rule mandatory for plans, but then back-tracked and said it would remain optional, until eventually under Section 108 of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) the rules were made employer retirement plans to cooperate with non-spouse beneficiaries who wish to transfer an inherited employer retirement account to an inherited IRA.
Notably, though, an outright distribution of an employer retirement account to a beneficiary is treated as .
To help mitigate the tax consequences of inheriting a potentially large pre-tax retirement account, the Internal Revenue Code permits spouses to roll an inherited retirement account over to his/her own IRA, and other “non-spouse” beneficiaries are permitted to at least “stretch” distributions out over their life expectancies as well.
However, the favorable rules for a so-called “stretch IRA” do not automatically apply to all inherited retirement accounts.
However, an important caveat in the context of employer retirement plans is that while it is an year after death).
The basic purpose of this rule was/is fairly straightforward: to relieve employer retirement plans from being saddled with the administrative costs to implement what could be 50 years of stretch distributions to the beneficiary of an employee who only worked for the company for less than a year in the first place.
Otherwise, employer retirement plans could face an ‘undue’ burden of administering long-term stretches to short-term employees (who happened to pass away while being employed there).
For spousal beneficiaries, this has not necessarily been a problematic limitation, because the spouse can still do a rollover of the plan, and over to his/her own individual IRA (and then wait until age 70 ½ to take RMDs under the normal rules for his/her own account).
If the 401(k) plan allows for an inherited 401(k) stretch, then Jeremy may do so.In the case of an inherited employer retirement plan – such as an inherited 401(k) or inherited 403(b) account – the employer has the option to year after death.Fortunately, though, since 2010 employer retirement plans are required to at least permit a non-spouse designated beneficiary to complete a trustee-to-trustee transfer to an inherited IRA, preserving the ability to complete a stretch.However, for a living IRA owner, the applicable distribution period is based on the Uniform Life Table (which is technically the joint life expectancy of the account owner and a hypothetical beneficiary who is 10 years younger).In the case of an inherited IRA, the non-spouse beneficiary’s applicable distribution period is simply based on his/her own single life expectancy (using Table I of Appendix B in IRS Publication 590).