Friday, December 29, 2006


INHERITED Retirement Plans
The new tax law changes the rules for non-spousal beneficiaries of an employer-sponsored plan such as a 401K, 403B or 457 Plan. I’ve compared the old law to the new law to see just what the change involved.

If you inherited an IRAfrom someone other than your spouse, here were your choices:
Take it and pay tax but no penalty on the entire amount.
Take it all by the end of the fifth year following the death of the IRA owner.

Leave the IRA in the name of the decedent and take distributions under one of the following methods:
If the decedent was receiving the required minimum distribution at the time of deaththe beneficiary can take distributions over the longer of:
-Beneficiary’s life expectancy or
-The decedent’s life expectancy.

If the decedent was NOT receiving the RMD, the beneficiary could take it out over his/her own life bases on the single lifetime table.

After Dec 31,2006 you can roll the inherited IRA over into your own IRA.
Under this new law, the IRA is subject to the distribution rules applicable to beneficiaries. The new rule applies to other qualified retirement plans you may inherit as well as IRAs.

You don’t have to leave the IRA in the name of the decedent.
It now applies to other inherited qualified retirement plans.
It does NOT extend the length of time in which to take the distributions.

OTHER COMMENTS—Vanguard article
I read an article published by Vanguard. Initially I got the impression that Vanguard was saying that you could extend the length of time over which you took the distributions. However, I believe that the intent was to state that OTHER qualified plans could be taken based on the single lifetime table or decedent’s life—same as the old law, but with other plans added.
Here is a link to the Vanguard article:
Link to IRS forms and publications:
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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.

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