Life and Death Planning for Retirement Benefits

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Chapter 1: The Minimum Distribution Rules 87
for each beneficiary (see . These are separate accounts for most minimum distribution
purposes, but not for purposes of determining the ADP, because the IRA was left to a single
funding trust and the division into separate shares/accounts occurred at the “trust level” not at the
“beneficiary designation form level” (see E), A)). Accordingly, the ADP for all
of the beneficiaries will be the life expectancy of the oldest trust beneficiary D)) who
remains as a beneficiary as of the Beneficiary Finalization Date . As of the date of death,
the oldest beneficiary is Shelly’s sister, but she cashes out her entire inherited IRA prior to
September 30, Year 2; accordingly, she is no longer a beneficiary as of the Beneficiary Finalization
Date. Shelly’s nephew, who was the second oldest beneficiary as of the date of death, now becomes
the oldest beneficiary. X, Y, and Z wish the nephew would cash out his share prior to the
Beneficiary Finalization Date, so they could use the 50+-year life expectancy of the oldest one of
them as their ADP. However, the nephew wants a payout over his 30-something year life
expectancy, so he does not cash out his share. As of the Beneficiary Finalization Date, the oldest
beneficiary is Shelly’s nephew and his life expectancy becomes the ADP for all of the remaining
beneficiaries.
C. Effect of death prior to the BFD. A person who is a beneficiary as of the date of death,
but then dies prior to the Beneficiary Finalization Date, does NOT thereby lose his status
as a beneficiary for purposes of determining the ADP. Reg. A-4(c). He
will still be considered a beneficiary—unless his benefits are entirely distributed (to him
or to his estate) or disclaimed (by him or by his estate) prior to the Beneficiary Finalization
Date. For what happens to the deceased beneficiary’s interest at that point, see
The exception to this rule would be a beneficiary whose death erased his right to
the benefits, due to his failure to survive long enough to meet a minimum survival period
(see or because his death caused him to “drop out” of the pool of beneficiaries
(under a trust, for example).
1.9 Enforcement of the RMD Rules
1.9.01 Who enforces the minimum distribution rules
Compliance with the minimum distribution rules is one of the more than 30 requirements
a qualified retirement plan (QRP) must meet to stay “qualified.” The plan administrator
is the enforcer of the QRP minimum distribution rules. Since disqualification of the plan would be
a disaster for all concerned, the plan administrator is extremely concerned to make sure RMDs are
distributed—even though the penalty for missing an RMD is imposed on the “payee” rather than
on the plan.
An IRA does not have to be “qualified” in the same way that QRPs must be qualified; the
IRS does not issue individual determination letters for IRAs. Rev. Proc. 87-50, 1987-2 C.B. 647,
§ 4.03. The penalty tax for failure to take the RMD falls on the payee, not on the IRA provider.
However, IRA providers are required to report to the IRS annually, on Form 5498, the
year-end account value of each IRA they hold and also whether an RMD is required from the
account for the year in question. Reg. A-10. The IRA provider is also required to inform
the IRA account holder that a distribution is required, and to either calculate or offer to calculate
the amount of the RMD for the account holder. 2002-1 CB 814.
1.9.02 Failure to take an RMD: 50% penalty and other effects