Retirement account with no beneficiary named

[Jesse]

Taxpayer's spouse died November 2007 and it was just now discovered that a retirement account existed through an old employer and a beneficiary had never been listed. Wisconsin is a community property state and all other assets transferred to surviving spouse. No estate return needed to be filed - until now. From what I can find there is no way around the estate being the beneficiary, correct?

The decedent was not receiving RMD, so the entire account must be distributed by the end of the fifth year following the year of the decedent's death which would be 12/31/12, correct?

It's my understanding that a FEIN must be obtained for the estate and the estate must then pay taxes on the retirement funds with the taxpayer receiving credit for the estate tax paid, correct?

Is there any way around the estate filing?

[Burke]

If the estate is the beneficiary, which in this case it is, and all the income is passed through to the surviving spouse or any other person designated in the will, then that person claims the income when distributed and pays the tax on it. The only thing a 1041 would accomplish is paperwork. But if they withhold taxes, you may have no other choice. Try to avoid this. The problem will come with determing how to cash the check. Check with her bank.

[Jesse]

Wow - that was quick!

Thanks Burke! I'd rather not have the extra paperwork. This is for an out of town relative who will be visiting this weekend so I have yet to see all the paperwork requested for the distribution. He said the company is requiring a FEIN for the distribution, but I'm wondering if it's not just the bank requiring the FEIN to have the funds transferred. I'll ask more questions.

[Burke]

Its probably the company or custodian holding the funds. And that would make sense since the bene is the estate. Sometimes it is also the bank. If the custodian and bank are not major institutions, they may be more flexible, especially if it is a community property state and there is a surviving spouse. This must have been a retirement account he had before he was married, as only the spouse could sign away her right to the funds as a beneficiary.

[Jesse]

Beneficiary not an individual.
1) If the beneficiary is not an individual, determine the required minimum distribution for 2012 as follows.
Death on or after required beginning date. Divide the account balance at the end of 2011 by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix C. Use the life expectancy listed next to the owner's age as of his or her birthday in the year of death, reduced by one for each year after the year of death.

2) Death before required beginning date. The entire account must be distributed by the end of the fifth year following the year of the owner's death. No distribution is required for any year before that fifth year.



The estate is the beneficiary because no beneficiary was ever named and rule #2 would apply.
The Company is requiring the FEIN to release funds and will issue the check in the Estate of XXXX XXXXX.
He wants to roll the funds into another retirement account, which as surviving spouse would be allowed, but the beneficiary is not actually the surviving spouse, so can these funds be rolled into another retirement account?

If the money flows thru the estate to the surviving spouse will a 1099R be issued in the estate's FEIN or the surviving spouse's Social Security Number?

[Jesse]

Fyi

I have come to the conclusion that #2 is technically correct. However I did find several Letter Rulings that permitted the spousal rollover when the decedent's estate was the sole beneficiary of the plan and the estate.

In case anyone would come across this or a similar scenario - Letter Rulings: 201212021; 9034046; 200129036; 8746055

[Burke]

I have read these (couldn't find one of them) and it appears that the IRS has allowed a spousal rollover in each situation where no bene was named, there was no will, and the spouse was the sole heir of the estate. I think you may have a case to discuss this with the custodian of the funds, as 457(b) plans have been eligible for rollover since 2002 if your client meets those requirements. A trustee-to-trustee transfer is what you are looking for, if it can be affected. If they pay it to the estate, they will need an FEIN and that is what will be on the 1099R.