Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

survival did not extend beyond the Beneficiary Finalization Date ( ¶ 1.8.03 ), the IRS would recognize the formerly-contingent, now-primary beneficiary as “the” beneficiary, since he is entitled to the benefits “contingent on the employee’s death or another specified event” (see ¶ 1.7.03 , second paragraph). The IRS should not treat the formerly-contingent-now-primary beneficiary as a mere successor beneficiary ( ¶ 1.5.12 ), because the original primary beneficiary never became entitled to the benefits. 1.8 Modifying RMD Results after the Participant’s Death As noted, required minimum distributions RMDs) after the participant’s death are imposed on the participant’s beneficiary. Who is required to take those distributions and over what period of time depends on the identity of the beneficiary. Generally, the identity of the beneficiary (and the resulting minimum distribution requirements) are determined as of the date of the participant’s death. In this ¶ 1.8 , we look at two ways you can modify the application of the minimum distribution rules after the participant’s death: One is by dividing the participant’s benefit into “separate accounts” for multiple beneficiaries ( ¶ 1.8.01 – ¶ 1.8.02 ); the other is by “removing” beneficiaries prior to the Beneficiary Finalization Date ( ¶ 1.8.03 ). 1.8.01 The separate accounts rule 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 of the IRA, see “E.” Separate accounts treatment is also available for nonIRA plans. However, 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). 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.