Change in IRA rules for non-spouse beneficiaries?

Question

Someone told me that a recent change to the tax code changed the rules that apply to a non-spouse IRA beneficiary. The change, as it was explained to me, is that the inherited IRA can now be combined with any other IRA that the beneficiary has and that the RMD rules requiring the beneficiary to withdraw funds from the inherited IRA no longer apply. Sounds to good to be true.

I have not been able to find any reference to or information about this change. Has anyone else heard of this and, if so, can someone point me to an explanation of the change? Thanks.

joetaxpayer · Accepted Answer

The recent pension reform act addresses inheriting a non-spouses 401k, but I don't believe the inherited IRA was addressed in this round of reform. If anyone knows otherwise, they are bound to quickly set me straight, and keep me honest. JOE

Tad Borek · Answer

Bill,The change in rules was for non-spouse beneficiaries of retirement plans (such as a 401k or 403b), not IRAs. Under the old rules those beneficiaries were forced to take a lump sum. Under the new rules they can rollover the balance to an IRA, and take distributions over five years, or over their life expectancy. This is primarily of benefit to child-beneficiaries and, especially, domestic partners.Unless I missed something that is very buried, the IRA is a beneficiary IRA, meaning it can't be converted to a Roth IRA, and can't be combined with any of the beneficiary's other IRAs.For more info you might google: NONSPOUSE BENEFICIARY PENSION PROTECTION ACT 2006.-Tad

Bill · Answer

Thanks Tad. Exactly what I needed.

Aaron Mallin · Answer

You are correct that the new law addresses only defined contribution plans (such as 401k, 403bs, etc). The law did not address IRAs because IRAs were already allowed to be converted into inheritance IRAs. The new law is simply addressing 401ks which did not have that feature previously.

Aar> Bill wrote:

Change in IRA rules for non-spouse beneficiaries?

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