Individual retirement accounts, as I’ve written about before, are an increasingly valuable planning tool. One of the tax benefits that comes out of the Pension Protection Act of 2006 is the ability of a non-spouse beneficiary to rollover a lump sum distribution from the deceased participant’s retirement plan account tax free to an “inherited IRA”. The big advantage? It allows the beneficiary to take a deferred payout of the benefits over his or her lifetime.
I’ll skip the fine-print, but it’s important for you to know that it’s not a gimme. The IRS earlier this year said that retirement plans are not obligated to offer the non-spouse beneficiary option. My guess is that many plans will not bother to offer this distribution option because it complicates plan administration. But is “simple” plan administration, the real objective of the plan sponsor?