Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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payable to successor beneficiaries (see ¶ 1.5.13 , ¶ 1.6.03 (E)). Rather, a new distribution period starts: The post-death rules of § 401(a)(9)(B)(ii) and (iii) will be applied “as if the surviving spouse were the employee” for purposes of determining RMDs to the successor beneficiary(ies) after her death ...meaning that the benefits will have to be distributed over the life expectancy of the surviving spouse’s Designated Beneficiary or under the 5-year rule (see ¶ 1.5.07 ). The (B)(iv)(II) rule is quite confusing, so must be reviewed in detail: A. Rule applies only if participant died before his RBD. Under the structure of § 401(a)(9) the (B)(iv)(II) rule can apply only if the participant dies before his RBD. See Reg. § 1.401(a)(9)-3 , A-1, confirming that § 401(a)(9)(B)(ii) , (iii) , and (iv) apply only if the employee (participant) “dies before the employee’s required beginning date (and, thus, before distributions are treated as having begun in accordance with section 401(a)(9)(A)(ii)).” Reg. § 1.401(a)(9)-5 , A-5(b), reiterates that the special rules of “(B)(iv)” apply only if the employee dies before his RBD, as does IRS Publication 575 (2009), p. 33. (For the record, in PLR 2009-45011, the IRS erroneously applied the (B)(iv)(II) rule in a case where the participant died after his RBD.) B. ... And spouse dies before her Required Commencement Date. The second condition that must exist for the (B)(iv)(II) rule to apply is that the surviving spouse-sole beneficiary of the account “dies before the distributions to such spouse begin.” § 401(a)(9)(B)(iv)(II) . Under the regulations, the date distributions “begin” means the date distributions are required to begin , not when they actually begin ; and that Required Commencement Date 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 after 2009 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 after 2009 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