Personal Wealth Law News

When a retirement plan participant died and named the surviving spouse as the beneficiary of death benefits, the spouse had several options, one of which was to roll the benefits out of the plan and into an IRA, permitting a long stretchout of benefit payments, if that was desired. But if the beneficiary was not the spouse, perhaps children instead, there was a good chance that all of the benefits would have to be distributed almost immediately- and subjected to federal income tax. This problem seemed to be solved by the Pension Protection Act of 2006, which permitted non-spouse beneficiaries to roll over the benefits to an IRA and delay distribution and taxation. Initially, there was a wrinkle, though. The IRS interpreted the new law as allowing such rollovers only if the retirement plan provided for them; that is, it was a voluntary provision, applicable only if the plan permitted it.

This didn’t seem to be the correct interpretation of the law, and a technical corrections bill was introduced to make it clear. At that point, the IRS announced that while the provision was voluntary for 2007, it was mandatory in 2008 and later years. That seemed to settle the matter. But…

That technical corrections bill didn’t pass, and the latest technical corrections bill doesn’t mention the subject of non-spouse rollovers. Now, it appears that the IRS has backtracked, and has reverted to its view that non-spouse rollovers are permitted only when the plan allows them; that is, they are not mandatory. This creates a very significant tax problem for individuals who do not leave their retirement benefits to a surviving spouse. There is planning that can avoid this problem, but it should be done while the plan participant is still alive.

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Retirement planning for lawyers was the title of a series of seminars at which I spoke last fall, under the sponsorship of the Pennsylvania Bar Institute. PBI is planning a similar seminar in Philadelphia in April. On the same topic, there is an excellent website sponsored by the American Bar Association, titled Second Season of Service. It repays viewing by any lawyer, especially those over 55. The basic premise is that lawyers who have many years of experience need not retire completely when they reach their sixties, but might instead use the talents acquired to continue in the law or in related work, but in a different way. The address for this program is www.abanet.org/secondseason/. It contains links to numerous articles on paths older lawyers have taken.

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