Non-Spouse Beneficiary Rollover

What Is a Non-Spouse Beneficiary Rollover?

A non-spouse beneficiary rollover is a retirement plan asset rollover performed in the event of the death of the account holder where the recipient is not the spouse of the deceased.

Understanding a Non-Spouse Beneficiary Rollover

A non-spouse beneficiary rollover usually means that the recipient receives the balance in a one-time lump-sum payment, subjecting them to full, immediate taxation. With a non-spouse beneficiary rollover, if the funds are rolled over into another retirement account, it must be named as a beneficiary account including both the deceased and beneficiary's names. Many retirement accounts require that the spouse be the sole beneficiary.

IRA Rollover versus Transfer

There are two ways to move an IRA from one custodian to another: rollover or transfer. With an IRA rollover, the individual may take possession of the funds for a maximum of 60 calendar days prior to depositing the funds into another qualified account.

An investor may only rollover their IRA once every 12 months. The investor has 60 days from the date of the distribution to deposit 100% of the funds into another qualified account, or they must pay ordinary income taxes on the distribution and a 10% penalty tax if the investor is under 59-1/2. An investor may transfer their IRA directly from one custodian to another by simply signing an account transfer form.

The investor never takes possession of the assets in the account, and the investor may directly transfer their IRA as often as they like.

IRA Rollover

A rollover occurs when transferring the holdings of one retirement plan to another without suffering tax consequences. The distribution from a retirement plan is reported on IRS Form 1099-R and may be limited to one per year for each IRA.

Rollovers often are employed to save on taxes as with retirement plans. With a direct rollover, the retirement plan administrator may pay the plan’s proceeds directly to another plan or to an IRA. The distribution may be issued as a check made payable to the new account. When receiving a distribution from an IRA through a trustee-to-trustee transfer, the institution holding the IRA may distribute the funds from the IRA to the other IRA or to a retirement plan.

In the case of a 60-day rollover, funds from a retirement plan or IRA are paid directly to the investor, who deposits some or all of the funds in another retirement plan or IRA within 60 days. Taxes are typically not paid when performing a direct rollover or trustee-to-trustee transfer. However, distributions from a 60-day rollover and funds not rolled over are typically taxable.