Pension Protection Act Of 2006—
How It Affects Your Qualified Plans
And Estate Plannning
Clients frequently ask
my advice regarding their
qualified plans and their es-
tate planning. One of the
most common questions is
whether it is beneficial to
their children if they con-
vert their 401(k) or 403(b)
into an IRA.
The decision essential-
ly rests on two factors.
★ The first is straightfor-
Joseph S. Karp,
C.E.L.A.
ward: the kinds of invest-
ment opportunities available in your
401(k) and 403(b) vs. an IRA.
★ The second factor is far more
complex and involves the govern-
ment regulations for various types
of qualified plans.
Currently, federal law permits non-
spouse beneficiaries of IRAs—of
course, that is usually the children—
to “stretch out” their withdrawals over
their actuarial lives. This can pro-
vide a steady income stream for your
child. Staggered withdrawals also min-
imize the income tax consequences
for your child.
But what about a 401(k) and
403(b)? In the past, children (or any
non-spouse beneficiary) were required
to complete all withdrawals within
five years. But now, thanks to the Pen-
sion Protection Act of 2006, the rules
have been relaxed. Now,
just as with an IRA, non-
spouses inheriting 401(k)
or 403(b) assets can stretch
out their withdrawals over
their lifetimes.
But there’s a catch. The
new law permits the 401(k)
and 403(b) to be stretched
out only if the plan permits
it. Many plan administra-
tors, eager to terminate
their economic exposure,
want to see all monies withdrawn as
soon as possible, and thus may still
require the non-spouse beneficiary to
finish making all withdrawals within
five years.
So be sure to check with your
401(k) or 403(b) administrator to de-
termine if your plan allows your chil-
dren to stretch out their withdrawals.
If not, it may be advantageous for you
to roll over your plan into an IRA.
Joseph S. Karp is a nationally certified
and Florida Bar-certified elder law attorney
(C.E.L.A.) specializing in the practice of Trusts,
Estates and Elder Law. His offices are locat-
ed at 2500 Quantum Lakes Drive, Boynton
Beach; 2875 PGA Blvd., Palm Beach Gar-
dens; and 1100 SW St. Lucie W. Blvd., Port
St. Lucie. Call him at 561-752-4550 (Boyn-
ton); 561-625-1100 (Palm Beach Gardens);
or 772-343-8411 (Port St. Lucie). Toll-free
from anywhere: 800-893-9911. E-mail: KLF@
Karplaw.com. or website www.karplaw.com