Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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can get the IRS to waive it (see ¶ 1.9.03 ) or she withdraws the entire IRA balance by December 31, 2015 (see ¶ 1.5.11 (C)). C. Deadline for election if the sole Designated Beneficiary is the surviving spouse (or a trust of which the spouse is deemed to be the sole beneficiary). The deadline under § 401(a)(9)(B)(iv) that would appear to apply if the surviving spouse is the sole beneficiary of the account is the earlier of the end of the year in which the first distribution would be required to be made to her under the life expectancy payout method ( ¶ 1.6.04 ) or the end of the year containing the fifth anniversary of the participant’s death. This creates a potential trap for surviving spouses of young decedents, with respect to a QRP or 403(b) plan that allows an election but provides the 5-year rule as the default election. For example, if the decedent dies in the year he would have turned age 40, in Year 1, the election period expires in Year 6 (the year that contains the fifth anniversary of the date of death), when the decedent would have reached age 45. Under the life expectancy payout method, the surviving spouse would not have to take any RMDs until the year the decedent would have reached age 70½ (Year 30 or 31), but if she is defaulted into the 5-year rule in Year 6 then the entire remaining account balance becomes the “RMD” for Year 6, and here is what will happen to her in Year 6:  If the inherited plan is a QRP or 403(b) plan, she will receive a distribution of the entire balance in Year 6. Being an RMD, this distribution will not be eligible for rollover; see ¶ 2.6.03 (E).  If the inherited plan is an IRA of which the spouse is the sole beneficiary, her failure to take the RMD in Year 6 would be deemed an election to treat the account as her own in that year; see ¶ 3.2.03 (D), #3. The election would be effective retroactive to the beginning of the year in which it is made, meaning that the entire account would NOT be treated as an RMD for such year. See ¶ 1.6.03 (B). As with the determination of the eligible rollover distribution to the surviving spouse where the decedent dies after his RBD ( ¶ 1.6.03 (A), (B)), the QRP and IRA produce widely different results.

Computing RMDs based on participant’s life expectancy

This ¶ 1.5.08 explains when and how to compute post-death RMDs using the “participant’s life expectancy” as the ADP.

The Required Commencement Date for RMDs computed using the participant’s life expectancy as the ADP is the end (December 31) of the year after the year of the participant’s death. Reg. § 1.401(a)(9)-2 , A-5, second sentence. This deadline cannot be extended even if the beneficiary did not become timely aware of the existence of the account (though that could be reasonable cause for getting a waiver of the penalty for missed RMDs; see ¶ 1.9.03 and PLR 2014- 17027.)