Surviving spouse could roll inherited plan benefits into her IRA

Plain-English summary

A deceased employee's estate was the beneficiary of his qualified retirement plan and section 403(b) annuity plan. His surviving spouse was the estate's sole executor, the sole trustee and beneficiary of the revocable trust receiving the estate assets, and the person entitled to the remaining trust property. She proposed directing both plan balances to herself and rolling them into an IRA in her own name. The IRS treated the distributions as paid from the plans to the spouse for section 402(c) purposes because of her control over the estate and trust and her sole beneficial interest. It ruled that she could complete the rollovers without current income inclusion if each amount reached her IRA within 60 days after its distribution from the applicable plan.

Ruling snapshot

• Question: May a surviving spouse roll plan benefits payable through her deceased spouse's estate and trust into an IRA in her own name?
• Outcome: approved (each rollover had to be completed within the applicable 60-day period)
• Key authorities: IRC §§ 402(c)(1), (3), (4), (8), and (9), 401(a), 403(b), and 408(a) and (b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202019008 [Third Party Communication:
Release Date: 5/8/2020 Date of Communication: Month DD, YYYY]
Index Number: 402.08-01, 402.09-00,
402.00-00 Person To Contact:
------------------, ID No. -----------------
------------------------- Telephone Number:
----------------------------- --------------------
------------------------------------ Refer Reply To:
-------- CC:EEE:EB:QP3
PLR-113510-19
Date:
In Re: Private Letter Ruling January 31, 2020

Will = --------------------------------------
Trust = -------------------------------------------
Decedent = ---------------------------
Taxpayer = -------------------------
Ex-Spouse = ----------------------
Employer H = --------------------------------------------------------
Plan 1 = --------------------------------------------------------------------
Plan 2 = ---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
----------------
Amount 1 = --------------------
Amount 2 = ----------------
State J = --------------------
IRA = ---------------------------------------------------------------------------------------
-----------------------------------
Date 1 = ----------------------
Date 2 = ---------------------
Date 3 = ----------------------
Date 4 = --------------------
Date 5 = ------------------

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

This letter responds to your request dated May 23, 2019, as supplemented by additional
correspondence, in which several rulings are requested under section 402(c) of the
Internal Revenue Code.

PLR-113510-19 2

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

On Date 1, Decedent executed his will, Will, and restated trust, Trust (originally
established on Date 2). Trust is a revocable living trust which became irrevocable upon
Decedent’s death. On Date 4, Decedent died prior to attaining age 70 ½ and was
survived by his widow, Taxpayer. At the time of his death, Decedent was employed by
Employer and participated in Plan 1, a defined contribution retirement plan qualified
under section 401(a), and Plan 2, an annuity plan described under section 403(b).

Taxpayer was married to Decedent at his death. As the executor of Decedent’s estate,
the sole trustee of Trust, and the sole beneficiary of Trust, Taxpayer submitted the
requested rulings.

Section 2.01 of Will provides that upon Decedent’s death, after payment of taxes and
expenses, all of his probate estate shall be given to the trustee of Trust and directs the
trustee to administer the property according to Trust and any amendments made prior
to Decedent’s death. Section 3.01 of Will names Taxpayer as Decedent’s executor.
Section 4.01 of Will grants the executor broad powers to administer Decedent’s estate
and any trust established under Will. Section 4.02 grants the executor all powers
provided by Will, common law, and relevant law of State J.

Article 1 of Trust names Taxpayer as Decedent’s trustee. Article 5, section 1.01, of
Trust provides that Trust becomes irrevocable upon Decedent’s death. Article 5,
section 5.05, of Trust provides that after September 30 of the calendar year following
Decedent’s death, the trustee may not distribute any retirement plan for the benefit of
Decedent’s estate for any entity other than an individual. Article 7 of Trust provides that
if Decedent’s wife survives him, any remaining trust property will be distributed to her
outright and free of trust. Article 11 of Trust governs Decedent’s intentions for his
retirement plans. Article 11, Section 11.01(b), of Trust provides that the trustee of Trust
may cause the plan or part of the retirement plans to be transferred directly into another
retirement plan in his wife’s name, without the intervening step of transferring it to Trust.
Section 13 of Trust grants broad powers to the trustee of Trust.

Section 2.04 of Plan 1 provides: 1) that upon commencing participation a plan
participant shall designate a Beneficiary on Forms provided by the plan administrator or
its designee; 2) from time to time, the plan participant may change his or beneficiary by
written notice to the plan administrator or the plan administrator’s designee; 3) if no
designated beneficiary exists at the date of death of the plan participant, or if the plan
participant has revoked a prior designation filed in writing with the plan administrator or
designee without having filed a new designation, then any death benefits that would
have been payable to the beneficiary shall be payable to the plan participant’s spouse, if
living; if not living, equal parts to each of the beneficiary’s children; or if none survive, to
beneficiary’s estate.

PLR-113510-19 3

Section 9.2 of Plan 2 provides that it is a governmental plan that is exempt from Title I of
the Employee Retirement Income Security Act of 1974. Section 11.3 of Plan 2 provides
that if a judgment decree or order that relates to marital property rights of a spouse or
former spouse is made pursuant to the domestic relations laws of any state, then the
amount in the participant’s account balance shall be paid in the manner and to the
person or persons so directed in the domestic relations order.

Decedent had named Ex-Spouse as beneficiary of Plan 1 and Plan 2. Decedent and
Ex-Spouse divorced. On Date 5, a qualified domestic relations order (QDRO) from a
State J court was communicated to the plan administrator that Decedent and Ex-
Spouse divorced, ordered that assets in Plan 1 and Plan 2 be divided, and
communicated how the assets should be divided, as marital property, during the
relevant time-period described in the QDRO.

The QDRO additionally provided that as of the date that the plan administrators receive
the QDRO, all of the plan benefits otherwise payable to Ex-Spouse as beneficiary are
payable to the estate of Decedent and that Decedent retained the right to change the
designation during his life. Decedent never changed the beneficiary designation.

Taxpayer represents that under the laws of State J, the beneficiary of Plan 1 is
Decedent’s estate. Taxpayer further represents that a State J QDRO provided for the
division of Plan 1 assets between Decedent and Ex-Spouse. Taxpayer represents that
under the laws of State J, the beneficiary of Plan 2 is the Decedent’s estate.

Additionally, Taxpayer has established an individual retirement plan, IRA, as described
in section 408(a) or 408(b), for the purpose of receiving rollover distributions from the
account of Plan 1 and Plan 2. Taxpayer proposes to roll over Amount 1 from Plan 1
and Amount 2 from Plan 2 directly to her IRA rollover account.

As of the date of Decedent’s death, Date 4, Plan 1 had a value of Amount 1 and Plan 2
had a value of Amount 2.

Based on the above, you, through your authorized representative, request the following
letter rulings:

1. Taxpayer will be treated as acquiring Amount 1 from Plan 1 and Amount 2 from
   Plan 2 directly from Decedent, not from Trust.

2. Taxpayer is eligible to roll over the distributions from Plan 1 and Plan 2 to an IRA
   established in her own name pursuant to section 402(c)(9), provided that the rollover
   occurs no later than the sixtieth day following the day that Amount 1 is distributed from
   Plan 1 and Amount 2 is distributed from Plan 2.

3. Taxpayer will not be required to include in her income for federal tax purposes the
   distributions from Plan 1 and Plan 2 in the year of the distributions.

PLR-113510-19 4

Section 402(c)(1) 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)(2) provides that the maximum amount transferred to which paragraph (1)
applies shall not exceed the portion of such distribution which is includible in gross
income (determined without regard to paragraph (1)). The preceding sentence shall not
apply to such distribution to the extent—

(A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust or
to an annuity contract described in section 403(b) and such trust or contract provides for
separate accounting for amounts so transferred (and earnings thereon), including
separately accounting for the portion of such distribution which is includible in gross
income and the portion of such distribution which is not so includible, or

(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii)
of section 402(c)(8)(B).

In the case of a transfer described in subparagraph (A) or (B), the amount transferred
shall be treated as consisting first of the portion of such distribution that is includible in
gross income (determined without regard to paragraph (1)).

Section 402(c)(3) provides that 402(c)(2) shall not apply to any transfer of a distribution
made after the sixtieth day following the day on which the distributee received the
property distributed. The Secretary may waive the 60-day requirement under
subparagraph (A) where the failure to waive such requirement would be against equity
or good conscience, including casualty, disaster, or other events beyond the reasonable
control of the individual subject to such requirement.

Section 402(c)(4) defines an eligible rollover distribution as any distribution to an
employee of all or any portion of the balance to the credit of the employee in a qualified
trust; except that such term shall not include—

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,
(B) any distribution to the extent such distribution is required under section 401(a)(9),
and

PLR-113510-19 5

(C) any distribution which is made upon hardship of the employee.

Section 402(c)(8)(B) defines an 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) a trust qualified under
section 401(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) 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) will apply to
such distribution in the same manner as if the spouse were the employee.

In this case, Decedent’s estate is the beneficiary of Decedent’s interests in Plan 1 and
Plan 2. Taxpayer is Decedent’s surviving spouse. As the sole executor of all of
Decedent’s estate, Taxpayer has the authority to dispose of the assets of Decedent’s
estate. Decedent’s Will provided that all assets will pour over to Trust after payment of
Decedent’s final expenses. Taxpayer is sole trustee of Trust which became irrevocable
on Decedent’s death. Under the terms of Trust, the trustee shall distribute all remaining
Trust property to Taxpayer free and clear of trust if Taxpayer survives Decedent. As
trustee of Trust, Taxpayer will direct that all assets of Plan 1 and Plan 2 will be paid to
Taxpayer. Taxpayer intends to roll over these amounts to IRA within 60 days of
distribution from Trust. Under these circumstances, because the distributions
attributable to the Decedent under Plan 1 and 2 are being paid to his spouse, section
402(c) applies to the distributions in the same manner as if the spouse were the
Decedent. Therefore, the distributions may be treated as paid from each plan to
Taxpayer for purposes of section 402(c).

Accordingly, we conclude that:

1. Taxpayer will be treated as acquiring Amount 1 from Plan 1 and Amount 2 from
   Plan 2 directly from Plan 1 and Plan 2 for purposes of section 402(c).

2. Taxpayer will be eligible to roll over the distributions from Plan 1 and Plan 2 to an
   IRA established in her own name pursuant to section 402(c)(9), provided that
   each rollover occurs no later than the sixtieth day following the day that Amounts
   1 and 2 are distributed from Plans 1 and 2 respectively.

3. Taxpayer will not be required to include Amount 1 and Amount 2 in her gross
   income for federal tax purposes for the calendar year in which the distributions
   and rollovers occur, provided that each rollover occurs no later than the sixtieth
   day following the day that Amounts 1 and 2 are distributed Plans 1 and 2
   respectively.

PLR-113510-19 6

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

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalties of perjury statement
executed by an appropriate party, as specified in Rev. Proc. 2020-1, 2020-1 I.R.B. 1,
§ 7.01(16)(b). This office has not verified any of the material submitted in support of the
request for ruling, and such material is subject to verification on examination. The
Associate office will revoke or modify a letter ruling and apply the revocation
retroactively if there has been a misstatement or omission of controlling facts; the facts
at the time of the transaction are materially different from the controlling facts on which
the ruling was based; or, in the case of a transaction involving a continuing action or
series of actions, the controlling facts change during the course of the transaction. See
Rev. Proc. 2020-1, § 11.05.

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,

                               John T. Ricotta
                               Branch Chief
                               Qualified Plans, Branch 3
                               Employee Benefits, Exempt Organizations and
                               Employment Taxes

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