Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

In this ¶ 1.8.01 , we look at how multiple beneficiaries can divide up an inherited IRA into separate inherited IRAs (“separate accounts”), one payable to each of the respective multiple beneficiaries. The rules discussed here apply to Roth IRAs as well as traditional IRAs. Following the “establishment” of such separate accounts, the beneficiary of each such separate account will be responsible only for taking the RMDs from his account. Regarding apportionment of RMDs prior to such establishment, see ¶ 1.7.06 . If the division into separate accounts occurs by a certain deadline, then the separate accounts get an additional benefit: The ADP for each separate account will be determined as if its share of the benefits had been left just to the beneficiary(ies) of that separate account; see “B.”

If the benefits pass to multiple beneficiaries through a trust or estate that was named as beneficiary, see “E.”

Separate accounts treatment is also available for nonIRA plans. Although employee contribution accounts in a QRP can be treated as separate accounts for income tax purposes ( ¶ 2.2.04 (C)), they would not be treated as separate accounts for post-death RMD purposes unless they were payable to different beneficiaries. Reg. § 1.401(a)(9)-8 , A-2(a)(1), (2).

Separate accounts treatment is NOT available for computing lifetime RMDs. ¶ 1.3.05 .

A. IRS’s statement of the separate accounts rule. If the participant’s benefit under a plan “is divided into separate accounts and the beneficiaries with respect to one separate account differ from the beneficiaries with respect to the other separate accounts of the employee under the plan, for years subsequent to the calendar year containing the date as of which the separate accounts were established, or date of death if later, such separate account under the plan is not aggregated with the other separate accounts under the plan in order to determine whether the distributions from such separate account under the plan satisfy section 401(a)(9). Instead, the rules in section 401(a)(9) separately apply to such separate account… .” Reg. § 1.401(a)(9)-8 , A-2(a)(2). Emphasis added. B. Separate accounts for ADP purposes. As explained at ¶ 1.7.05 , the ADP for benefits payable to multiple beneficiaries is generally determined based on the life expectancy of the oldest member of the group (or on the applicable “no-DB rule” if not all the beneficiaries are individuals). These rules can be avoided if separate accounts (see “A”) are established by the end of the year after the year of the participant’s death: “...[T]he applicable distribution period for each such separate account is determined disregarding the other beneficiaries of the employee’s benefit only if the separate account is established on a date no later than the last day of the year following the calendar year of the employee’s death.” Reg. § 1.401(a)(9)-8 , A-2(a)(2), third sentence. In order for the beneficiaries’ shares to be recognized as separate accounts, they must share pro rata in gains and losses after the participant’s death; see “D.”

If separate accounts are established by that deadline, the beneficiary(ies) with respect to each such separate account will be considered the sole beneficiary(ies) of the account payable to