Life and Death Planning for Retirement Benefits

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Chapter 1: The Minimum Distribution Rules 83
In order for the beneficiaries’ shares to be recognized as separate accounts, they must share
pro rata in gains and losses after the participant’s death; see “D.”
B. Separate accounts for ADP purposes. As explained at the ADP for benefits
payable to multiple beneficiaries is generally determined based on the life expectancy of
the oldest member of the group (or on the applicable “no-DB rule” if not all the
beneficiaries are individuals). These rules can be avoided if separate accounts (see “A”)
are established by the end of the year after the year of the participant’s death. The regulation
provides that “However, the applicable distribution period for each such separate account
is determined disregarding the other beneficiaries of the employee’s benefit only if the
separate account is established on a date no later than the last day of the year following the
calendar year of the employee’s death.” Reg. A-2(a)(2).
If separate accounts are established by that deadline, the beneficiary(ies) with respect to
each such separate account will be considered the sole beneficiary(ies) of the account payable to
such beneficiary(ies) for purposes of determining post-death RMDs; see the Road Map a
Step 5. For example, if the surviving spouse is the sole beneficiary of a separate account payable
to her, her account will be subject to the special minimum distribution rules applicable when the
surviving spouse is sole beneficiary (see , even though the IRA was originally
left to multiple beneficiaries. See A-2(a)(2) (fourth sentence).
The suspension of required minimum distributions for the year 2009 did NOT
extend this deadline. Thus, beneficiaries of decedents who died in 2008 had to have completed the
establishment of separate accounts by December 31, 2009, in order to have such accounts
recognized for purposes of establishing the ADP, even though they did not have to take any RMD
in 2009. 2009-41 IRB 491, Part V, A-4.
C. Separate accounts for all other RMD purposes. Multiple beneficiaries can establish
separate accounts for their respective interests even after the deadline described at “B.”
Reg. A-2(a)(2). The advantage of establishing “late” separate accounts is
that, even though the ADP will continue to be the same for all of the separate accounts,
each beneficiary’s RMD will be determined solely based on his separate account balance
for Distribution Years following the establishment of the separate accounts. Each
beneficiary will be responsible only for taking the RMD from his respective account; there
is no need to worry about a penalty because some other beneficiary fails to take his RMD
(see . Separate accounts allow each beneficiary to choose his own investments.
The ADP for all the late-established separate accounts will continue to be the ADP that
applied to the combined accounts on the Beneficiary Finalization Date . See also
B).
D. Pro rata sharing in gains and losses. In order to establish separate accounts for any
purpose, according to the regulations, the beneficiaries’ interests must share pro rata in
post-death gains and losses occurring prior to the division. This requirement comes from
the definition of separate accounts: “[S]eparate accounts in an employee’s account are
separate portions of an employee’s benefit reflecting the separate interests of the
employee’s beneficiaries under the plan as of the date of the employee’s death for which
separate accounting is maintained. The separate accounting must allocate all post-death
investment gains and losses, contributions, and forfeitures, for the period prior to the