Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Definition of “sole beneficiary”

For purposes of the special minimum distribution rules applicable to a spouse-beneficiary (though not for purposes of the spousal rollover), the participant’s surviving spouse must be the “sole” beneficiary. The spouse is the sole beneficiary if she, alone, will inherit all of the benefits if she survives the participant; in other words, if she is the sole primary beneficiary. The fact that other beneficiaries are named as contingent beneficiaries (who will inherit if the spouse does not survive the participant) does not impair her status as “sole” beneficiary. Bud Example: The beneficiary designation form for Bud’s IRA provides: “I name my spouse, Louise, as my sole primary beneficiary, to receive 100 percent of all benefits payable under this Plan on account of my death if she survives me. If she does not survive me, the benefits shall instead be paid to my sister Gladys.” The spouse, Louise, is Bud’s sole beneficiary so long as both spouses are alive. She is Bud’s sole beneficiary at his death if she survives him and does not disclaim the benefits. The fact that Gladys is named as a contingent beneficiary does not impair Louise’s status as sole beneficiary. Reminder: If the “separate accounts” rule applies for ADP purposes, the test of whether the spouse is the “sole beneficiary” is applied only to the separate account of which the spouse is beneficiary. Reg. § 1.401(a)(9)-8 , A-2. See ¶ 1.8.01 (B). The applicable time for determining whether the participant’s spouse is the sole beneficiary differs depending on which tax provision is being considered:  For purposes of the post-death minimum distribution rules ( ¶ 1.6.03 – ¶1.6.06 ), the spouse must be sole beneficiary as of the date of the election, and “a” beneficiary on the date of death ( ¶ 1.7.02 ). Reg. § 1.401(a)(9)-8 , A-2(a)(2). In some cases, if the surviving spouse is just one of several beneficiaries on the date of death, it will be possible to “remove” the other beneficiaries (by means of disclaimer, distribution, or establishing separate accounts by 12/31 of the year after the year of the participant’s death; ¶ 1.8.01 (B)) so that the spouse can be deemed the sole beneficiary.  In the case of the spouse’s right to elect to treat the deceased spouse’s IRA as the spouse’s own IRA ( ¶ 3.2.03 ), she can make this election at any time after the participant’s death provided she is the sole beneficiary ( ¶ 1.8.03 ). Reg. § 1.408-8 , A-5(a).  For purposes of computing RMDs during the participant’s life , see ¶ 1.3.03 .

How to determine RMDs of the surviving spouse

This is one of the more confusing aspects of the minimum distribution rules. There are several different ways to compute RMDs for benefits left to (or in trust for) a surviving spouse, though there is only one correct method for each particular situation. Amazingly, the RMD