Q. If a client dies, can her beneficiary husband assume ownership of her 403(b) account and then roll his IRA into the 403(b)?
A. No, he may not. The husband can retain the 403(b) account, but only as an inherited account, renamed to “John Jones, beneficiary of Mary Jones, deceased.” No amounts can be rolled into inherited accounts.
Follow-up Questions
Q. I recall that another client died, and her beneficiary husband simply assumed ownership of her IRA. Are you sure the same rule would not apply to the 403(b)?
A. The rules do permit the assumption of ownership of an IRA when the beneficiary is the surviving spouse. That rule does not extend to employer sponsored plans — only to IRAs.
Q. Are you saying that neither ERISA, nor ERISA-exempt (school district) 403b spousal beneficiaries can "step into the shoes" of the deceased like they can with regard to an IRA?
A. That is exactly what I am saying. While the spouse beneficiary can simply assume ownership in an IRA, they cannot do that in an employer sponsored plan — they can retain the account ONLY as an inherited account.
Q. We have been told that it is permissible for a beneficiary with an inherited account to roll money into that account because there is no regulatory prohibition on such rollover. What is the regulatory citation for your analysis that such a rollover is not possible?
A. Here is a direct quote from IRS Publication 590 (as published for 2013 filing): "Inherited from someone other than spouse." If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. This means that you cannot make any contributions to the IRA. It also means you cannot roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary."
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