Surviving spouse could roll plan proceeds through marital trust into IRA

Plain-English summary

A deceased plan participant named his surviving spouse and their joint living trust as equal beneficiaries of his 401(k) plan. After his death, the spouse became the trust’s sole trustor and trustee and could allocate the trust’s plan interest to a marital trust, distribute it to herself, and place it in an IRA in her own name. The IRS ruled that her complete control over the trust allowed the payment to be treated as a distribution to the employee’s surviving spouse under section 402(c)(9). She could roll the proceeds into her IRA within 60 days after the trust received them from the plan. The ruling did not permit rollover of required minimum distributions.

Ruling snapshot

• Question: Could a surviving spouse roll plan proceeds into her IRA after receiving them through a marital trust she controlled?
• Outcome: Approved, subject to the 60-day rollover deadline and exclusion of required minimum distributions
• Key authorities: IRC §§ 401(a)(9), 402(c), and 408

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201523020 Third Party Communication: None
Release Date: 6/5/2015 Date of Communication: Not Applicable
Index Number: 402.08-05
Person To Contact:
------------------ ----------------, ID No. ----------------
------------------------ Telephone Number:
------------------------------- --------------------
Refer Reply To:
CC:TEGE:EB:QP1
PLR-T-102488-15
Date:
March 04, 2015

Taxpayer = ------------------
Decedent = --------------------
Plan = -------------------------------------
Trust = -------------------------------------------------------------------------------------------------
Date 1 = -------------------------

Dear --------------:

This is in response to your request dated July 25, 2012, as supplemented by
correspondence dated June 13, 2014, in which your authorized representative, on your
behalf, requested a ruling under section 402(c) of the Internal Revenue Code (“Code”).

The following facts and representations have been submitted under penalties of perjury
in support of the requested ruling:

Decedent, Taxpayer’s spouse, died on Date 1. At the time of his death, Decedent was
retired and a participant in the Plan, a 401(k) plan of Decedent’s former employer that is
represented to meet the qualification requirements of section 401(a) of the Code.
Decedent was taking minimum required distributions under section 401(a)(9) of the
Code. Decedent’s named beneficiaries under the Plan are Taxpayer (50%) and Trust
(50%).

Trust is a joint living trust with Decedent and Taxpayer as Trustors and Trustees. The
Trust provides that, upon death of Decedent, Taxpayer becomes sole Trustee and sole
Trustor.

Trust provides that upon the death of either Trustor, the Trustee will divide the trust
estate (including any additions to the trust estate as a result of the first Trustor to die)
into two separate trusts, the Marital Trust and the Residuary Trust. Trust further
provides that the Trustee, in making allocations or distributions, need not consider the
basis of the various assets that are being distributed so that no attempt need be made
PLR-T-102488-15 2

to equalize the aggregate basis of assets distributed to the various distributees. The
decision of the Trustee in allocating or distributing assets shall not be subject to
challenge by anyone.

Trust further provides that the Trustee will pay or apply for the benefit of the surviving
Trustor during his or her lifetime all of the net income of the Marital Trust in monthly
installments but in no event less often than annually. Trust further provides that the
surviving Trustor will have the right to direct the Trustee in writing to pay or apply for
said survivor’s benefit such amounts of the principal of the Marital Trust, up to the whole
thereof, as the survivor may designate.

Taxpayer represents that she, as the sole Trustee of Trust, will direct that the Trust’s
50% interest in the Plan be distributed to Trust and allocated to the Marital Trust.
Taxpayer, as surviving Trustor, will direct the Trustee to distribute to herself as
beneficiary of the Marital Trust the proceeds of the Plan. Taxpayer will then arrange a
rollover contribution into an Individual Retirement Account (“IRA”) established in her
name. Such rollover would not include any required minimum distributions under section
401(a)(9) of the Code.

Based on the above facts and representations you, through your authorized
representative, request a ruling that Taxpayer, as Decedent’s surviving spouse, will be
treated as having received the distribution from Trust, as directly from the Plan, and
that, pursuant to section 402(c)(9) of the Code, she is eligible to roll over amounts
distributed from the Plan into an IRA established in her name.

Section 402(c)(1) of the Code provides, generally, that if any portion of an eligible
rollover distribution from a section 401(a) qualified retirement plan is transferred into an
eligible retirement plan, the portion of the distribution so transferred shall not be
includible in gross income in the taxable year in which paid.

Section 402(c)(3)(A) of the Code provides, generally, that, except as provided in
subparagraph (B) (hardship exception), section 402(c)(1) shall not apply to any transfer
of a distribution made after the 60th day following the day on which the distributee
received the property distributed.

Section 402(c)(4) of the Code defines "eligible rollover distribution" as any distribution to
an employee of all or any portion of the balance to the credit of an employee in a
qualified trust except the following distributions:
(A) any distribution which is one of a series of substantially equal periodic
payments (not less frequently than annually) made --
(i) for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and the employee's designated
beneficiary, or (ii) for a specified period of 10 years or more,
PLR-T-102488-15 3

  (B) any distribution to the extent the distribution is required under section

401(a)(9), and
(C) any distribution which is made upon the hardship of the employee.

Section 402(c)(8)(B) of the Code defines eligible retirement plan as (i) an individual
retirement account described in section 408(a), (ii) an individual retirement annuity
described in section 408(b) (other than an endowment contract), (iii) an employees’ trust
described in section 401(a) which is exempt from tax under section 501(a), (iv) an
annuity plan described in section 403(a), (v) an eligible deferred compensation plan
described in section 457(b) which is maintained by an eligible employer described in
section 457(e)(1)(A), and (vi) an annuity contract described in section 403(b).

Section 402(c)(9) of the Code provides that if any distribution attributable to an
employee is paid to the spouse of the employee after the employee's death, section
402(c) shall apply to such distribution in the same manner as if the spouse were the
employee.

In this case, Decedent designated Trust as a beneficiary of the Plan. Decedent’s
surviving spouse, Taxpayer, is the sole trustee of Trust. Under the terms of Trust, the
decision as to which property will be allocated to the Marital Trust rests solely with
Taxpayer, as Trustee. Pursuant to this authority, Taxpayer intends to allocate Trust’s
50% interest in the Plan to the Marital Trust.

As Trustee of Trust, Taxpayer has the power to distribute to herself, for any purpose,
any portion or all of the property of the Marital Trust. Taxpayer intends to distribute the
proceeds of the Plan to Trust and allocate the proceeds to Marital Trust. Taxpayer then
intends to distribute the proceeds of the Plan from Marital Trust to herself as beneficiary
of the Marital Trust after which she intends to roll over the distribution to an IRA
maintained in her own name.

Under section 402(c)(9) of the Code, if a distribution attributable to an employee is paid
to the employee’s spouse after the employee’s death, the spouse will be treated as if
the spouse was the employee. In this case, Taxpayer is the sole trustor, trustee, and
beneficiary of Trust, and as such, has complete control and discretion as to the
disposition of the distribution from Plan that is attributable to Decedent. Taxpayer
intends to distribute the proceeds from Plan to herself as beneficiary. Since the
distribution will be paid to Taxpayer, who is the employee’s spouse with respect to
Decedent’s benefit in Plan, section 402(c)(9) applies and Taxpayer will be treated as if
she were the employee. Accordingly, Taxpayer may contribute the proceeds distributed
from Plan into an IRA set up and maintained in Taxpayer’s name, provided that the
contribution to the IRA occurs no later than the 60th day after the date the amount was
received by Trust from the Plan.
PLR-T-102488-15 4

This ruling does not authorize the rollover of amounts that are required to be distributed
by section 401(a)(9) of the Code.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This letter is based on the assumption that Trust is valid under applicable state law and
any IRA established by Taxpayer will also meet the requirements of section 408 at all
relevant times.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                   Sincerely,



                                   Laura B. Warshawsky
                                   Senior Tax Law Specialist
                                   Qualified Plans Branch 2
                                   Office of Associate Chief Counsel
                                   (Tax Exempt & Government Entities)