The 60-day rollover rule does not apply to non-spouse beneficiaries.
Non-spouse beneficiaries can only transfer inherited IRAs via direct (trustee-to-trustee) transfers.
Plan now with your clients to see if the IRA custodian will allow post-death trustee- to-trustee transfers from the inherited IRA account.
Find out if the IRA custodian will allow post-death trustee-to-trustee transfers from the inherited IRA account. The IRA custodian (bank, fund, etc.) can hold an inherited IRA hostage by not allowing the transfer. This does not mean that the non-spouse IRA beneficiary cannot access the inherited IRA. They certainly can. It means that if they want their money, the IRA custodian might just cut a check payable to the beneficiary and it will all be taxable, because a non-spouse beneficiary cannot do a rollover. If the custodian will not allow a trustee-to-trustee transfer to an inherited IRA, and the beneficiary wants his or her money, it will be a taxable distribution.
This rule prevented non-spouse beneficiaries of company plans from transferring inherited plan balances to an inherited IRA since the tax code refers to all plan distributions as rollovers.
As of 2007, the Pension Protection Act of 2006 allows non-spouse beneficiaries to do a direct transfer of inherited company plan funds to a properly titled inherited IRA, and as of 2010 (as amended by The Worker, Retiree, and Employer Recovery Act of 2008 signed into law on December 23, 2008) plans must allow this transfer.
The IRA rollover is still a much better option than relying on the company retirement plan to allow your beneficiaries to take advantage of this provision.
