Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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the marital trust, where at least they could reduce the surviving spouse’s future taxable estate. The regulation does NOT allow this maneuver.

Does this conclusion (different beneficiaries cannot aggregate, for RMD purposes, IRAs inherited from the same decedent) apply even for the year-of-death distribution? There is no IRS pronouncement supporting a different rule (different beneficiaries CAN aggregate) for the year - of-death distribution, so it seems wise to assume such aggregation is not permitted. Tucker Example: Tucker has two IRAs. He dies in 2016 at age 83, before taking any RMDs from either of his two IRAs. Assume his 2016 RMD is $60,000 from each IRA. Had he lived, he could have taken the total combined RMD of $120,000 for 2016 from either one of the IRAs. ¶ 1.3.04 . One IRA is payable to his widow, the other is payable to a QTIP Trust. If the widow takes $120,000 out of the IRA left to her, there is no authority for the proposition that this distribution to her satisfies the 2008 RMD for both IRAs. A retirement plan is not required to offer all the payout options that the law allows. Reg. § 1.401(a)(9)-3 , A-4(b). While most IRAs permit the life expectancy payout, the situation is just the opposite with QRPs. Most QRPs offer death benefits only in the form of lump sum distributions (or in some cases annuities), and do not offer the life expectancy payout method. A plan is not even required, when the 5-year rule applies, to allow the beneficiary to spread out distributions over the five years. Nor is the plan required to offer a lump sum distribution. The plan can provide a restricted form of payout, such as instalment payments or an annuity; as long as the distribution method called for by the plan document is not slower than the minimum distribution rules would require, it’s perfectly legal. Plan not required to offer stretch payout or lump sum What can be done if the participant’s retirement plan does not offer the payout options the participant or beneficiary wants?  If the participant is living, and is entitled to take the money out of the plan, he can roll the benefits over to an IRA that will offer more suitable payout options for his beneficiaries.  If the participant has already died, and the plan wants to distribute a lump sum but the beneficiaries want a life expectancy payout, see ¶ 4.2.04 regarding the ability of a Designated Beneficiary to transfer the distribution by direct rollover to an inherited IRA.  Distribution by the plan of a nontransferable annuity contract is another way to salvage a deferred payout to the beneficiaries while satisfying the plan’s desire to get rid of the money. The contract must call for distributions that comply with the minimum distribution rules. See ¶ 2.1.06 (G), ¶ 1.2.02 (A), and examples at PLRs 2004-38049, 2005-48027, and 2005-48028.