IRS Ruling Permits Rollover from Deceased Participant’s Account to Non-Designated Beneficiary

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Plan sponsors regularly handle situations that arise from a deceased participant’s failure to designate a beneficiary for his or her employer-sponsored retirement account. A private letter ruling (PLR) from the Internal Revenue Service (IRS) earlier this year could provide some insight into the agency’s thinking about allowing surviving spouses to roll over a deceased participant’s funds, even if a proper designation was not made to the spouse when the participant was alive.

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Under IRS rules, a distribution from a retirement plan formerly held by a deceased participant to a designated beneficiary may be treated as an eligible rollover with certain tax exemptions. But the same treatment generally does not hold for payout to a non-designated beneficiary.

Surviving Spouse Allowed Rollover

In PLR201821008, dated February 22, the IRS ruled a taxpayer was able to roll over a distribution from a deceased spouse’s employee retirement account into her own individual retirement account (IRA) after it was initially paid out to the decedent’s estate. The ruling was released to the public in May.

A PLR is binding for the IRS and the requesting taxpayer (in the event the matter is further disputed or litigated), but only for those parties. Thus, a

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