Widow may roll her late husband's retirement plan benefit into her own IRA even though it passes through his estate

Plain-English summary

A man died without naming a beneficiary on his employer retirement plan, so under
the plan's terms the benefit became payable to his estate. He also died without a
will, and his children disclaimed (formally refused) their shares, which under
state law left his surviving spouse as the sole beneficiary of the estate.
Normally, money that reaches a spouse only by passing through the estate is
harder to roll over than money paid to a spouse directly. But § 402(c)(9) treats
a plan benefit paid to a deceased employee's spouse as if the spouse were the
employee. The IRS ruled that because the disclaimers made the widow the sole
estate beneficiary, she may have the plan pay the benefit to the estate and then
roll the entire amount into an IRA in her own name, so long as she completes the
rollover within 60 days; the rolled-over amount is excluded from her income under
§ 402(c)(1). The ruling does not cover any amount that must be taken as a required
minimum distribution.

Ruling snapshot

• Question: May a surviving spouse who is the sole estate beneficiary roll a deceased participant's plan benefit, paid to the estate, into her own IRA tax-free?
• Outcome: Approved (favorable ruling)
• Key authorities: IRC §§ 402(c)(1), 402(c)(9), 408; Treas. Reg. § 1.402(c)-2

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201839005                                            Third Party Communication: None
Release Date: 9/28/2018                                      Date of Communication: Not Applicable
Index Number: 402.08-05
                                                             Person To Contact:
--------------------                                         ---------------------------, ID No. ---------------
------------------------------------                         -----------------
------------------------------------                         Telephone Number:
                                                             --------------------
                                                             Refer Reply To:
                                                             CC:TEGE:EB:QP2
                                                             PLR-103777-18
                                                             Date:
                                                             June 25, 2018



Legend

Taxpayer                       = -------------------
Decedent                       = ------------------------
Decedent’s Children            = -------------------------------------------------
State                          = --------------------------------------------
Plan                           = ------------------------------------------------------------------------


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

This is in response to your request dated February 5, 2018, 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 died in 2017 and was survived by his wife (Taxpayer) and his children
(Decedent’s Children). At the time of his death, Decedent was employed by State and
was a participant in a qualified plan maintained by State. Under the terms of the Plan,
upon a participant’s death, Plan proceeds become payable to the participant’s
designated beneficiary. However, if a participant does not have a valid designated
beneficiary in effect at the time of death, the Plan provides that the participant’s benefit
will be payable to the participant’s estate. Because Decedent did not have a designated
beneficiary in effect at the time of his death, the entire Plan benefit is payable to
Decedent’s estate.

Because Decedent died intestate, his estate would have been payable to Taxpayer and
Decedent’s Children under State law. However, Decedent’s Children validly disclaimed

their interests in Decedent’s estate in the year of Decedent’s death. Under State law,
Decedent’s Children are treated as though they predeceased the Decedent because of
the disclaimers. As a result, Taxpayer is the sole beneficiary of Decedent’s estate.

Taxpayer, as the surviving spouse of Decedent and sole beneficiary of Decedent’s
estate, intends to cause the Plan to pay Decedent’s benefit to the estate and, within 60
days after the date of the distribution from the Plan, to roll the entire distribution from the
Plan into an IRA set up and maintained in Taxpayer’s name.

Based on the above facts and representations you, through your authorized
representative, request the following ruling:

       Taxpayer may roll over the Plan benefit into an IRA set up and maintained in
       Taxpayer’s name provided that the rollover is completed within 60 days after the
       date the distribution is made from the Plan. To the extent that the amount
       distributed from the Plan is timely rolled over to that IRA, it will be excluded from
       Taxpayer’s income under section 402(c)(1) of the Code.

Section 402(a)(1) of the Code provides, in general, that any amount actually distributed
to any distributee by any employee trust as described in section 401(a) of the Code
which is exempt from tax under section 501(a) of the Code shall be taxable to the
distributee, in the taxable year of the distributee in which distributed, under section 72 of
the Code (relating to annuities).

Section 402(c)(1) of the Code provides, generally, that if any portion of an eligible
rollover distribution from a qualified trust 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) will not apply to any transfer of
a distribution made after the 60th day following the day on which the distributee received
the property distributed.

Similarly, section 1.402(c)-2, Q&A 11 of the Income Tax Regulations states that if an
eligible rollover distribution is paid to an employee and the employee contributes all or
any part of the eligible rollover distribution to an eligible retirement plan no later than the
60th day following the date the employee received the distribution, the amount
contributed is not currently includible in gross income.

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,

       (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)(5) of the Code provides that a transfer to an eligible retirement plan
described in clause (i) or (ii) of section 402(c)(8)(B) of the Code resulting in any portion
of a distribution being excluded from gross income under section 402(c)(1) of the Code
shall be treated as a rollover contribution described in section 408(d)(3).

Under section 402(c)(8)(B)(i) of the Code, an individual retirement account described in
section 408(a) is an eligible retirement plan.

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)(1) through (8) apply to the distribution in the same manner as if the spouse was
the employee.

Because Decedent’s Children disclaimed their interests in Decedent’s estate under
State law, Taxpayer is the sole beneficiary of Decedent’s estate. Taxpayer intends to
cause the Plan to distribute Decedent’s entire benefit under the Plan to the estate and
to roll over all of the proceeds to an IRA established and maintained in Taxpayer’s
name within 60 days after the date of the distribution from the Plan. Because Taxpayer
is treated as an employee under section 402(c)(9), to the extent that she timely rolls
over the amount of the distribution from the Plan, she may exclude that amount from
income under section 402(c)(1).

Thus with respect to your ruling request, we conclude as follows:

       Taxpayer may roll over the Plan benefit into an IRA set up and maintained in
       Taxpayer’s name provided that the rollover is completed within 60 days after the
       date the distribution is made from the Plan. To the extent that the amount
       distributed from the Plan is timely rolled over to that IRA, it will be excluded from
       Taxpayer’s income under section 402(c)(1) of the Code.

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


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 representation that Taxpayer is the sole beneficiary of
Dededent’s estate under State law and the assumption that the IRA that will be
established by Taxpayer to facilitate the rollover described herein meets the
requirements of section 408 of the Code 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,



                                        Keith R. Kost
                                        Senior Technician Reviewer
                                        Qualified Plans Branch 2
                                        Office of Associate Chief Counsel
                                        (Tax Exempt and Government Entities)




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