Ask the Expert: Two options for spouse
My late husband left me his 457 deferred compensation plan. The plan administrator says I must begin taking annual distributions from his plan in the year that my husband would have turned 701/2. The distributions are determined by my life expectancy. But my broker says this is incorrect, and if I transfer the funds in the plan to an IRA in my name, there will be no required distributions based on my husband's prior ownership. Can you tell me who is right?
They're both right. They're just talking about different things.
As a surviving spouse, you have two options. The plan administrator is talking about the first option: You remain the beneficiary on your late husband's account, either by leaving the account in the 457 plan, or by transferring it to a correctly titled inherited IRA. The advantage of staying the beneficiary is that you can tap the account without an early-withdrawal penalty anytime, regardless of your age. The downside: You must take your first minimum annual distribution (based on your life expectancy) in the year your husband would have turned 701/2.
The broker is talking about the second option, which is to transfer the plan to an IRA in your own name. The advantage of that option is that you won't have to start taking minimum annual distributions until after you turn 701/2. The downside is that as the owner, you can't take penalty-free distributions until you're 591/2.
One solution is to remain the account beneficiary until the year before you must start taking distributions based on your husband's ownership, and then transfer the account into an IRA in your own name.
The bottom line A surviving spouse can transfer an inherited retirement account into his or her own name.
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