Taxes and 403(B) Retirement Account

Oct 07, 2008 3 Replies
Z

I have a 403(B) retirement account with my wife as my beneficiary. I'd like answers to the following questions using the assumption that I die before she does:


  1. Will she be taxed at the same rate on the distributions from this retirement account as we are while I'm living (making the adjustment for her status as being "single" rather than "married filing jointly"?


  1. My wife is 2 years younger than I am. Will the RMD be adjusted to reflect her remaining life expectancy at the time I die, or will the RMD continue to be calculated on my remaining life expectancy although I'm not longer living?

  2. If I should die before I turn 70.5, does she have until she reaches 70.5 to begin the RMD?


  1. If she were to take any money out before she reaches 70.5, does that count toward the first year's RMD?


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P

Distributions are "ordinary" income, meaning that they get lumped with all the other income she has for the year of distribution. There's no special rate.

A spousal beneficiary can elect to treat the account as her own or as inherited. See IRS Publication 575 for the differences.

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N

  1. This is a 403(b), not an IRA. Therefore, the applicable IRS Publication is Pub 571.
  2. A surviving spouse can not treat it as if it was her own retirement plan.
  3. It is highly likely that the plan contains a clause that requires the plan balance be distributed to the beneficiary within a relatively short time.
  4. The surviving spouse can avoid being taxed on distributions by rolling it over into her own IRA.
  5. Once in her own IRA, then the normal rules for minimum distributions from your own IRA apply.
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H

Thank you for an excellent post. I was not aware of this important difference between 403b and 401k/IRA.

-HW "Skip" Weldon Columbia, SC

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