Due to death of a parent, I am beneficiary to a defined contribution employer retirement plan of type 403(b). The assets are pre-tax, a dozen or so mutual funds with names like "Stock Index Fund", "Market Index Fund", "Money Index Fund", "2030 Retirement Fund". (At least I think these are mutual funds... I am a total newbie, but trying to learn.)
I have been in touch with the custodian, and can now access the current individual fund values, and talk with a company representative on the phone. My current status with the custodian is "Deferred", so I do not have an inherited IRA, but have a 403(b) plan.
But now I read the article (https://www.fool.com/retirement/plans/inherited-iras/rules/) which claims
if you're a nonspouse... Unless you take the money in a lump sum or disclaim it, you're required to set up an inherited IRA.
Is this true? My parent died about 1 year ago, so the SECURE 2019 legislation applies to me. I am not at all near to 70 years old, so RMDs, I believe, are not required of me. (Required Minimum Distributions.)
The custodian's representative on the phone tells me that I can leave the plan in its current form (called the "deferred" state or employer plan); that I can redeem shares when I want, to make sure that the value is out by the end of ten years.
So am I really required to transform (roll over) the employer-sponsored plan to an "inherited IRA", even though this seems to change nothing important?
There are some differences, and I am curious about any other pros and cons not mentioned below.
If I roll-over, the custodian may swap certain funds' shares for ones of a different class. For example, the custodian says they might substitute "Investor"-class shares for existing "Institutional"-class ones. Should I care about this?
If I stay in the "deferred" state, it is a more "passive" investment (so said the associate). But I will have a wider array of investment choices in an inherited IRA (not limited to the employer plan's choices).
The associate told me that if I stay deferred, then when I ask to redeem shares (take a distribution) that the request will need to be approved by the employer, although they would rarely block it. This does add some seven days of delay, which perhaps is the biggest disadvantage of which I am aware.
To summarize: I want to know if I am free to leave the assets in the deferred form for the ten years, with no IRS punishment/fines/extra taxes. (And if so, what are the pros and cons.)