Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

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B. Start new life expectancy payout after spouse’s later death. The surviving spouse can name her own Designated Beneficiary for the rollover IRA she holds as owner. After her death, RMDs will then be based on the life expectancy of her Designated Beneficiary ( ¶ 1.5.05 ). In contrast, when the surviving spouse holds the inherited benefits merely “as beneficiary,” the ADP does not change after her death; it will continue to be what’s left of her (single) life expectancy, just as would be true for any other beneficiary (see ¶ 1.5.13 , ¶ 1.6.03 (E)). The only exception is in the rare case when both spouses die young ( ¶ 1.6.05 (C)). C. Later starting date for RMDs if participant was older than the surviving spouse . If the surviving spouse is the sole beneficiary of an inherited plan, she must start taking RMDs over her life expectancy no later than the end of the year after the year of the decedent’s death, or (if later) the end of the year in which the decedent would have reached age 70½; see ¶ 1.6.04 . (Of course, she must also take the RMD for the year of death, if the participant died after his required beginning date (RBD) and had not taken it himself; see ¶ 1.5.04 (A).) The required distribution of benefits rolled into the surviving spouse’s own IRA does not begin until the surviving spouse reaches age 70½. Thus, the spousal rollover or election can provide a later commencement date for RMDs for a surviving spouse who was younger than the deceased participant. If the participant was younger than the spouse, see “D.” D. When NOT to roll over to the spouse’s own IRA. Though the rollover to the spouse’s own IRA (or election to treat an inherited IRA as the spouse’s own IRA; ¶ 3.2.03 ) is the best option in most cases, it is not always suitable. Consider the relative vulnerability of the benefits to claims of the participant’s or spouse’s creditors (a subject not covered in this book). If there is after-tax money in either the inherited plan or in the surviving spouse’s own pre-existing IRA, consider converting the inherited plan or IRA directly to a Roth IRA (or converting the spouse’s own IRAs to a Roth IRA) before carrying out a rollover of inherited benefits to the spouse’s IRA, if a rollover would “dilute” the after-tax money that exists in either plan; see ¶ 2.2.08 . If the surviving spouse is under age 59½, see ¶ 3.2.08 . If the surviving spouse is older than the deceased spouse was, the surviving spouse may want to leave the benefits in an inherited plan or IRA until the year the deceased spouse would have reached age 69½. If the participant died before his Required Beginning Date (RBD; ¶ 1.4 ), the surviving spouse does not have to take any distributions as beneficiary until the year the deceased spouse would have reached age 70½ (see ¶ 1.6.04 ), whereas (once she rolls the benefits over to her own IRA) she will become subject to taking RMDs as owner the year she herself reaches age 70½. By not rolling over the benefits until the year the deceased spouse would have reached age 69½, she avoids having to take any RMDs as beneficiary but delays having to take RMDs as owner as long as possible. See PLR 2009-36049 for an example of this type of planning. If using this approach, be sure to have the spouse name her own Designated Beneficiary for the “inherited” IRA; see ¶ 1.6.05 (C). 3.2.02 Spousal rollover: QRPs and 403(b) plans § 402(c)(1) allows a participant in a qualified retirement plan (QRP) to roll over certain plan distributions to another QRP, or to any other eligible plan, if various requirements are met. ¶ 2.6.01 (B). If death benefits are paid to the participant’s surviving spouse, the rollover rules “apply