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treatment of inherited accounts, including inherited individual
retirement accounts or annuities.
Section 402(c)(9) permits rollover treatment to a
distribution made to a spouse after the death of the employee.
However, the regulations state that such rollover treatment is
limited to the spousal beneficiary.3 Accordingly, a distribution
to a non-spousal beneficiary does not receive rollover treatment,
and therefore is taxable to the beneficiary upon receipt of the
distribution.
Petitioner is not the employee of the plan or the employee’s
spouse. Rather, petitioner is the non-spousal distributee and
sole beneficiary of Martin’s plan. Petitioner received the total
net distribution of Martin’s plan in his individual name.
Petitioner then contributed the total amount into the Inherited
IRA. We have no election form or other document reflecting a
valid annuity payment election. Rather, we have petitioner’s
3 Sec. 1.402(c)-2, Q&A-12(b), Income Tax Regs., provides
the following:
Q-12. How does section 402(c) apply to a
distributee who is not an employee?
A-12. (b) Non-spousal distributee. A distributee
other than the employee or the employee’s surviving
spouse (or a spouse or former spouse who is an
alternate payee under a qualified domestic relations
order) is not permitted to roll over distributions from
a qualified plan. Therefore, those distributions do
not constitute eligible rollover distributions under
section 402(c)(4) and are not subject to the 20-percent
income tax withholding under section 3405(c).
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Last modified: May 25, 2011