Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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If the decedent’s account is not “physically” divided up, but the IRA provider or plan administrator tracks each beneficiary’s gains, losses, and distributions separately, that should be sufficient to constitute “establishment” of separate accounts. Another way to accomplish the objective is for the participant to divide his IRA into separate IRAs payable to the respective beneficiaries while he is still living . For example, a participant leaving his IRA partly to charity and partly to an individual beneficiary could create two separate IRAs, one payable to each of the respective beneficiaries. Such separate IRAs have the nontax advantage of not requiring the beneficiaries to interact with each other after the participant’s death. The disadvantages of having multiple IRAs while the participant is still alive include the additional paperwork, the difficulty of keeping the IRAs in the same relative proportion to each other when each contains different investments, and increased investment management fees applicable to multiple smaller accounts compared with one larger account. 1.8.03 “Removing” beneficiaries by Beneficiary Finalization Date Establishing separate accounts for multiple beneficiaries ( ¶ 1.8.01 – ¶ 1.8.02 ) is one way to improve the RMD situation after the participant’s death. Another is to prune the list of beneficiaries, eliminating “undesirable” beneficiaries by means of distributions and/or disclaimers prior to the “Beneficiary Finalization Date.” A. The Beneficiary Finalization Date. The participant’s beneficiaries for minimum distribution purposes are all the beneficiaries who, as of the date of the participant’s death, are or might become entitled to inherit his benefits, minus any beneficiary who ceases to have an interest in the benefits by a certain deadline: “[T]he employee’s designated beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of September 30 of the calendar year following the calendar year of the employee’s death.” Reg. § 1.401(a)(9)-4 , A-4(a). That deadline is called the Beneficiary Finalization Date in this book, though that term is not used in the regulations. Although WRERA suspended the minimum distribution rules for the year 2009 (see ¶ 1.1.04 ), WRERA did NOT extend this deadline. Thus, beneficiaries of decedents who died in 2008 still had to be “removed” by September 30, 2009, if they were not to “count” for RMD purposes, even though no beneficiary had to take any RMD in 2009. Notice 2009-82 , 2009-41 IRB 491, Part V, A-4. Post-death planning cannot somehow designate a new crop of beneficiaries. Rather, “...any person who was a beneficiary as of the date of the employee’s death, but is not a beneficiary as of that September 30 ( e.g., because the person receives the entire benefit to which the person is entitled before that September 30) is not taken into account in determining the employee’s designated beneficiary for purposes of determining the distribution period for required minimum distributions after the employee’s death.” Reg. § 1.401(a)(9)-4 , A-4(a). So, if there are “good” beneficiaries ( e.g. , individual beneficiaries with long life expectancies) who are already named by the deceased participant ( e.g. , as contingent beneficiaries, or among a group of multiple beneficiaries), it is possible to eliminate other ( e.g. , older or nonindividual) beneficiaries, so that by September 30 of the year after the year of death only the “good” beneficiaries are left.