Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

is December 31 of the year in which the decedent would have reached age 70½ (or of the year after the year of the participant’s death, if later; see ¶ 1.6.04 ). Reg. § 1.401(a)(9)-3 , A-3(b), A-5, A-6. Michelle Example: Michelle died in Year 1 at age 68, leaving her IRA to her husband Bill as sole beneficiary. Had she lived, Michelle would have reached age 70 in Year 3, and would have reached age 70½ in Year 4, so her RBD would have been April 1, Year 5 ( ¶ 1.4.02 ). She died before her RBD, with her spouse as sole beneficiary, so Bill’s Required Commencement Date is December 31 of Year 4 (the year Michelle would have reached age 70½). To comply with the minimum distribution rules, Bill takes what would be the Year 4 RMD (computed based on his life expectancy as beneficiary; see ¶ 1.6.03 (D)) on November 1 of Year 4. He never elects to treat the IRA as his own ( ¶ 3.2.03 ). He dies on December 1, Year 4. Because he died before his Required Commencement Date, the (B)(iv)(II) rule applies; see “C” for how to determine RMDs after Bill’s death. This is true even though he had actually started taking distributions, because he died before the date he was required to take distributions. Grenville Example: Grenville dies in Year 1 at age 68, leaving his IRA to his wife Rowena as sole beneficiary. Had he lived, Grenville would have reached age 70½ in Year 3, so his RBD would have been April 1, Year 4 ( ¶ 1.4.02 ). He died before his RBD, with his spouse as sole beneficiary, so Rowena’s Required Commencement Date is December 31 of Year 3 (the year Grenville would have reached age 70½; ¶ 1.6.04 ). In order to comply with the minimum distribution rules, Rowena takes what would be the Year 3 RMD (computed based on her life expectancy as beneficiary; ¶ 1.6.03 (D)) on November 1 of Year 3. She never elects to treat the IRA as her own ( ¶ 3.2.03 ). Rowena dies on January 1, Year 4. Because she died after her Required Commencement Date, the (B)(iv)(II) rule does not apply; see ¶ 1.6.03 (E) for how to determine RMDs after Rowena’s death. If Rowena had not taken the RMD for Year 3 by the deadline of December 31, Year 3, then such failure to take the RMD would have been deemed an election by Rowena to treat the IRA as her own, in which case an entirely different set of rules would apply after her death; see ¶ 3.2.03 (D)(3) regarding this deemed election and ¶ 1.6.03 (B) for how to compute RMDs to Rowena’s beneficiaries in that case. C. Post-death rules applied as if spouse is participant. If the (B)(iv)(II) rule applies (see “A” and “B”), then the benefits must be distributed, following the spouse’s death, either by the end of the year that contains the fifth anniversary of the spouse’s death (5-year rule; ¶ 1.5.06 ) or (if the benefits are payable to a Designated Beneficiary of the surviving spouse ) in annual installments over the life expectancy of the spouse’s Designated Beneficiary, commencing no later than December 31 of the year following the year of the spouse’s death. ¶ 1.5.05 ; Reg. § 1.401(a)(9)-3 , A-5, A-6, § 1.401(a)(9)-4 , A-4(b). Essentially, the surviving spouse is treated as a “new” participant who died before his RBD . The beneficiary to whom the benefits are paid at the spouse’s death could be a successor beneficiary named by the surviving spouse or by the plan. Reg. § 1.401(a)(9)-4 , A-2; see ¶ 1.5.12 , ¶ 1.7.02 . The identity and status of the spouse’s beneficiary will be determined as of the date of the spouse’s death, and finalized on September 30 of the year after the year of the spouse’ s death (see ¶ 1.8.03 ). Note, however, that even if the surviving spouse has remarried, and named her new