Life and Death Planning for Retirement Benefits

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82 Life and Death Planning for Retirement Benefits
survival did not extend beyond the Beneficiary Finalization Date , 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
second paragraph). The IRS should not treat the formerly-contingent-now-primary
beneficiary as a mere successor beneficiary , 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 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 ; the other is by “removing”
beneficiaries prior to the Beneficiary Finalization Date .
1.8.01 The separate accounts rule
In this 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 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 C)), they would not be treated as separate accounts for post-death RMD
purposes unless they were payable to different beneficiaries. Reg A-2(a).
Separate accounts treatment is NOT available for computing lifetime RMDs
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. A-2(a)(2). Emphasis added.