Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

“aggregable,” multiple Roth IRAs must be not only inherited from the same decedent but must have identical Applicable Distribution Periods.

The regulation makes no distinction, for purposes of this rule, among different types of traditional IRAs the beneficiary may have inherited from the particular decedent; contributory IRAs, rollover IRAs, SEP-IRAs, and SIMPLE IRAs may all be aggregated. But the beneficiary can not aggregate inherited IRAs of any type with his own IRAs or with IRAs inherited from any other decedent, and can not aggregate traditional IRAs with Roth IRAs. See Reg. § 1.408-8 , A-9, and Reg. § 1.403(b)-6(e)(7) provides similarly for multiple 403(b) plans inherited from the same decedent. Mendel Example: Mendel dies, leaving two 403(b) plans, three traditional IRAs, and a Roth IRA to his daughter Chaya Sora as beneficiary. Assume the RMD rules require that all these retirement plans be distributed to Chaya Sora in annual installments over her life expectancy. After calculating her RMDs separately for each inherited 403(b) account and each inherited IRA, Chaya Sora can take the RMDs for both 403(b) plans from either one or both of the 403(b) plans. Similarly, she can take the RMDs for all three inherited traditional IRAs from any one or more of them. However, she cannot aggregate the inherited traditional IRAs with the inherited 403(b)s or inherited Roth IRA, or aggregate any of these inherited plans with her own 403(b) plans, IRAs, or Roth IRAs for purposes of fulfilling any RMD requirement. Although the regulation refers to aggregating IRAs inherited “from the same decedent,” prudence suggests not combining or aggregating IRAs that have different Applicable Distribution Periods, even if they are inherited from the same decedent. For example, Junior inherits two IRAs from Mother. One IRA was payable directly to him as designated beneficiary, so the ADP is his life expectancy. The other was payable to all three of Mom’s children, and was not divided into separate accounts by the applicable deadline ( ¶ 1.8.01 ) after her death, so the ADP is the life expectancy of Mom’s oldest child (not Junior). Even though both IRAs were indeed inherited from the same decedent, they should presumably not be combined or aggregated for RMD purposes because they have different ADPs, though there is no IRS guidance on this point. B. Different beneficiaries cannot aggregate accounts inherited from one decedent. The regulations do not allow multiple IRAs (or 403(b) plans) inherited by different beneficiaries from a single participant to be “pooled” so that RMDs paid to one beneficiary can fulfill the distribution requirement applicable to another beneficiary: Jeffrey Example: Jeffrey dies, leaving two IRAs. One is payable to a QTIP marital trust ( ¶ 3.3.02 ), and one is payable to a credit shelter trust. The IRS’s minimum distribution “trust rules” ( ¶ 6.2 ) are complied with, so the beneficiaries of the respective trusts are treated as Jeffrey’s Designated Beneficiaries, and the life expectancy of the oldest beneficiary of each trust is used to measure the post-death RMDs to that trust from the two respective IRAs. Assume the credit shelter trust permits accumulation of income. To maximize income tax deferral and minimize estate taxes, the family would like to compute the RMD for both IRAs, then take the combined RMDs for both IRAs entirely from the IRA payable to the marital trust. This way, the credit shelter trust would get the maximum available income tax deferral and what income taxes had to be paid would be paid by