Brenner answers questions about all aspects of family finance.
I have inherited my mother's 457 retirement plan account. I want to move that account into an IRA. Must I do that in a trustee-to-trustee transfer?
Yes. Otherwise, you'll owe income taxes on the entire account.
If you were the original account owner's surviving spouse, you could withdraw the money without incurring taxes provided you deposited it all in an IRA within 60 days. But non-spouse beneficiaries don't have that option.
A trustee-to-trustee transfer avoids triggering taxes because you don't even temporarily withdraw the money you inherited. It goes directly from the 457 plan to the financial institution that administers the IRA. Here's how to arrange that:
1. Decide where you want to open the IRA. Let's say it's the ABC Mutual Fund Group.
2. Ask the 457 plan administrator to do a trustee-to-trustee transfer to that institution. If the plan opts to issue you a check instead of doing an electronic transfer, the check shouldn't be directly payable to you, warns Ed Slott, a Rockville Centre tax accountant and IRA expert. "A check to a non-spouse beneficiary is a taxable distribution." If your name is Sam Jones, a 457 plan check should be payable to "ABC Mutual Fund Group, FBO (for benefit of) Sam Jones."
3. Open your new account at ABC Mutual Fund Group as an Inherited IRA. If your mother's name was Mary Jones and she died on Feb. 20, for example, the new account should be titled: "Mary Jones IRA (deceased 2/20/13) for the benefit of Sam Jones." Only a surviving spouse can put an inherited retirement account into his or her own name, explains Slott.
The bottom line A trustee-to-trustee transfer is the only way a non-spouse retirement account beneficiary can move money from one financial provider to another without incurring taxes.
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