Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

3. Failure to take an RMD. The third way to make the election is for the surviving spouse to fail to take, by the applicable deadline, “any amount” that is required to be distributed to her as a beneficiary under the minimum distribution rules. Reg. § 1.408-8 , A-5(b)(1); PLR 2001-21073. Note that even a $1 shortfall in the RMD would trigger this deemed election (under the “any amount” standard). If the participant died after his RBD, then the beneficiary (including a surviving spouse who is beneficiary) is required to take the RMD for the year of the participant’s death to the extent he did not take it himself. See ¶ 1.5.04 (A). As an RMD, this distribution cannot be rolled over by a surviving spouse-beneficiary; furthermore, she cannot roll over the inherited plan until after she has taken this RMD. ¶ 2.6.03 . Even if the inherited plan is an IRA and the spouse elects to treat the account as her own in the same year as the participant died she still has to take out this distribution. Reg. § 1.408-8 , A-5(a). Because this RMD must be taken regardless of whether the spouse elects to treat the inherited IRA as her own, it is not clear whether the surviving spouse’s failure to take this RMD in full would be deemed an automatic election by her to treat the inherited IRA as her own; it seems that it should NOT trigger that rule, but there is no authority or guidance on point. E. When spousal election may be made. The spousal election may “be made at any time after the individual’s date of death,” including after the surviving spouse’s own RBD or Required Commencement Date. See PLR 9311037. F. Rollovers also permitted. The Code and regulations never explicitly state that the surviving spouse ( without electing to treat the deceased participant’s IRA as the surviving spouse’s own IRA) can simply roll over distributions that she receives from the decedent’s IRA, as she can with distributions she receives from a QRP or 403(b) plan inherited from the deceased participant ( ¶ 3.2.02 ). The Preamble to the final minimum distribution regulations ( ¶ 1.1.01 ) corrects this oversight by stating that “If the spouse actually receives a distribution from the IRA, the spouse is permitted to roll that distribution over within 60 days into an IRA in the spouse’s own name to the extent that the distribution is not a required distribution, regardless of whether or not the spouse is the sole beneficiary of the IRA owner.” TD 9897, 67 FR 18987 (4/17/02). For examples of spousal rollovers of distributions from inherited IRAs, see PLRs 9842058 and 2009-34046. 3.2.04 Roth conversion by surviving spouse See Chapter 5 regarding Roth IRAs (¶ 5.2) and “conversions” from traditional plans and IRAs into Roth IRAs (¶ 5.4) . Since the surviving spouse has, with respect to QRP and 403(b) benefits left outright to her, every option the deceased participant would have had for those benefits (see ¶ 3.2.02 ), the surviving spouse can roll over the benefits into a Roth IRA just as the deceased participant could have done (see ¶ 5.4.01 (B)). She can also roll traditional IRA benefits inherited from the deceased participant into a Roth IRA (see ¶ 3.2.03 (F)). The recipient Roth IRA could be either her own Roth IRA or a Roth IRA in the name of the deceased participant payable to the surviving spouse as beneficiary (see ¶ 3.2.07 ). Having converted an inherited traditional plan or IRA to a Roth IRA, the surviving spouse would have the same options as other Roth-converters to (1) recharacterize the conversion (see ¶