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More Favorable Treatment for Inherited Pension Plans The Pension Protection Act of 2006 has extended an opportunity to heirs who inherit retirement plan funds from persons other than their spouses (surviving spouses already enjoyed favorable treatment). Under prior law, a sister, for example, who inherited her brother’s 401(k) plan, might have been forced to receive – and pay tax on – the entire account within five years, or even sooner. The new law permits the sister to transfer the funds by means of a “trustee to trustee transfer” into an IRA that will allow her to withdraw funds over her life expectancy. She benefits in two ways: IRA withdrawals are less likely to push her into a higher tax bracket, and IRA funds can be preserved to grow tax-deferred during her lifetime. If someone other than a spouse has named you as beneficiary of a retirement plan, or if you have named a friend, child, brother, sister or other relative as beneficiary of your own plan, consult with a pension adviser to ensure full advantage. Copyright © 2006 by R&R Newkirk. All rights reserved. |