Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

 The RMDs attributable to all traditional IRAs he inherited from one decedent from any one or more of the traditional IRAs inherited by that beneficiary from that decedent.  The RMDs attributable to all Roth IRAs he inherited from one decedent from any one or more of the Roth IRAs inherited by that beneficiary from that decedent. The regulation makes no distinction, for purposes of this rule, among different types of traditional IRAs the beneficiary may have inherited from the particular decedent; contributory IRAs, rollover IRAs, SEP-IRAs, and SIMPLE IRAs may all be aggregated. But the beneficiary can not aggregate inherited IRAs of any type with his own IRAs or with IRAs inherited from any other decedent, and can not aggregate traditional IRAs with Roth IRAs. See Reg. § 1.408-8 , A-9, and Reg. § 1.408A-6 , A-15. Reg. § 1.403(b)-6(e)(7) provides similarly for multiple 403(b) plans inherited from the same decedent. Mendel Example: Mendel dies, leaving two 403(b) plans, three traditional IRAs, and a Roth IRA to his daughter Chaya Sora as beneficiary. Assume the RMD rules require that all these retirement plans be distributed to Chaya Sora in annual installments over her life expectancy. After calculating her RMDs separately for each inherited 403(b) account and each inherited IRA, Chaya Sora can take the RMDs for both 403(b) plans from either one or both of the 403(b) plans. Similarly, she can take the RMDs for all three inherited traditional IRAs from any one or more of them. However, she cannot aggregate the inherited traditional IRAs with the inherited 403(b)s or inherited Roth IRA, or aggregate any of these inherited plans with her own 403(b) plans, IRAs, or Roth IRAs for purposes of fulfilling any RMD requirement. B. Different beneficiaries cannot aggregate accounts inherited from one decedent. The regulations do not allow multiple IRAs (or 403(b) plans) inherited by different beneficiaries from a single participant to be “pooled” so that RMDs paid to one beneficiary can fulfill the distribution requirement applicable to another beneficiary: Jeffrey Example: Jeffrey dies, leaving two IRAs. One is payable to a QTIP marital trust ( ¶ 3.3.02 ), and one is payable to a credit shelter trust. The IRS’s minimum distribution “trust rules” (¶ 6.2) are complied with, so the beneficiaries of the respective trusts are treated as Jeffrey’s Designated Beneficiaries, and the life expectancy of the oldest beneficiary of each trust is used to measure the post-death RMDs to that trust from the two respective IRAs. Assume the credit shelter trust permits accumulation of income. To maximize income tax deferral and minimize estate taxes, the family would like to compute the RMD for both IRAs, then take that RMD for both IRAs entirely from the IRA payable to the marital trust. This way, the credit shelter trust would get the maximum available income tax deferral and what income taxes had to be paid would be paid by the marital trust, where at least they could reduce the surviving spouse’s future taxable estate. The regulation does NOT allow this maneuver. Does this conclusion (different beneficiaries cannot aggregate IRAs inherited from the same decedent) apply even for the year-of-death distribution? There is no IRS pronouncement supporting a different rule (different beneficiaries CAN aggregate) for the year-of-death distribution, so it seems wise to assume such aggregation is not permitted.