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March 24, 2004 at 07:00 PM
IRS Letter Ruling OKs
Surviving Spouse Rollover
BY
In a recent favorable letter ruling, the Internal Revenue Service permitted a surviving spouse to make a rollover of her deceased husbands qualified plan proceeds, even though his estate was the named beneficiary.
The ability of a surviving spouse to make such a rollover has been questioned by some commentators since the Treasury Departments issuance of final regulations in 2002 under Section 401(a)(9). This private ruling seems to confirm the trend of earlier letter rulings to be lenient on this issue.
The deceased taxpayer (lets call him Bob) was only 49 when he executed a will in October 2002, and then died just a month later. His will named his wife, Alice, as his executrix and sole beneficiary of his estate. Three months later, the plan distributed Bobs preretirement death benefit to Alice as executrix, withholding 10% as federal income tax. Within less than 60 days, Alice contributed the amount of the distribution, plus an amount equal to the withheld tax into an IRA in her own name. The letter ruling requested that Alice be treated as having received the plan distribution from Bob, not from the estate, and that her IRA contribution would qualify for rollover treatment and would not be includable in Alices gross income.
Numerous private rulings have made these determinations in the past, on similar facts. Even where plan or IRA proceeds went through a trust before reaching the surviving spouse, a rollover usually was permitted so long as the trustee had no discretion as to the disposition of the trust proceeds.
