Estate Tax Help Could Be on the Way

Technical corrections acts generally attempt to rectify inadvertent errors and oversights enacted as part of legislation. This particular correction applies to the Pension Protection Act of 2006, the most sweeping pension reform legislation passed in the U.S. in 30 years, which contained the provision allowing such rollovers by non-spousal beneficiaries.

The IRS, however, announced in January that retirement plan administrators were not bound by the provision -- they could allow rollovers by non-spousal beneficiaries or not. Congress responded by clarifying the issue in the technical corrections bill that's now pending.

"There's a high chance the change will become mandatory," says Susan Hartman, a tax and estate planning consultant for Raymond James FinancialRJF in St. Petersburg, Fla. "Then retirement plan administrators won't be able to point to the notice saying it's optional," she says. "They'll be required to provide the alternative."

Non-spouse beneficiaries who elect to roll over retirement-account distributions into inherited IRAs must be certain to make a direct transfer into an account that's properly titled, cautions Slott. That means the name of the deceased plan participant must appear in the title of the IRA, such as Mary Brown IRA (deceased June 1, 2007).

"The change would create an opportunity for estate planning throughout the U.S. that didn't exist before," Goldberg says.