J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

7.14 Payouts to Beneficiaries

As the beneficiary of a qualified plan account (corporate or self-employed plan), including a 403(b) tax-sheltered annuity or Section 457 plan, your distribution options depend on the terms of the plan. You may prefer the option of receiving payments over your life expectancy, but the plan may require that you receive a lump-sum distribution or allow installment payments over only a limited number of years.

Although IRS final regulations generally allow beneficiaries to use a life expectancy distribution method, the IRS rules represent the longest permissible payment period. Qualified plans are allowed to require a shorter period and most do.

If you receive a lump-sum distribution, you generally may make a tax-free rollover to another plan, but the rollover options are more restricted for nonspouse beneficiaries than for surviving spouses as discussed below.

If the plan participant was born before January 2, 1936, and you receive a qualifying lump sum, you may claim special averaging (7.6).

Surviving spouse.

If you are a surviving spouse and receive a distribution that would have been eligible for rollover had your spouse received it, you may make a tax-free rollover to the qualified plan of your employer or to your traditional IRA. If you make a rollover to a traditional IRA, subsequent withdrawals are subject to the regular IRA distribution rules (8.8).

If you do not make a rollover and the payer plan gives you the option of taking distributions ...