IRA owner turns age 70 1/2 but dies before RBD

[Guest Pennysaver]

IRA owner turns 70 1/2 in 2010 but died before required beginning date of 4/1/2011. Is the RMD still required? The available guidance appears to conflict:

1. Treas. Reg. Sec. 1.402©-2, Q&A-7(b): "Any amount that is paid before January 1 of the year in which the employee attains (or would have attained) age 70-1/2 will not be treated as required under section 401(a)(9) and, thus, is an eligible rollover distribution if it otherwise qualifies." Treas. Reg. Sec. 1.408-8, Q&A-4 (regarding RMDs for IRAs) cross-references Treas. Reg. Sec. 1.402©-2, Q&A-7 to determine the RMD.

This indicates that on and after the January 1 of the year in which an IRA owner turns 70 1/2, the RMD is required to be made.

2. Treas. Reg. Sec. 1.408-8, Q&A-5(a) provides that a surviving spouse who is the sole beneficiary of an individual's IRA and has unlimited rights to withdraw amounts from the IRA may elect to treat the surviving spouse's entire interest as a beneficiary in the individuals' IRA as the surviving spouse's own IRA. If the surviving spouse makes this election, then the RMD for the calendar year of the election and subsequent years is determined with the surviving spouse as IRA owner. However, if the election is made in the calendar year of the IRA owner's death, then, although the surviving spouse is not required to take an RMD as the IRA owner for that calendar year, the surviving spouse is required to take an RMD for the year of the IRA owner's death determined with respect to the deceased IRA owner under Treas. Reg. Sec. 1.409(a)(9)-5, Q&A-4.

This indicates that a surviving spouse (who is the sole beneficiary) of an IRA owner must take the RMD, one way or the other, to the extent that the RMD was not taken by the IRA owner before death.

3. Treas. Reg. Sec. 1.409(a)(9)-3, Q&A-3(b) provides that RMDs must commence by the later of the end of the calendar year immediately following the calendar year in which the employee died or the end of the calendar year in which the employee would have attained age 70 1/2.

This indicates that the surviving spouse must take RMDs.

4. Publication 590 regarding IRAs states on page 33: "If an IRA owner dies after reaching age 70 1/2, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date."

This last one is confusing. It seems to imply that no RMD is required if the IRA owner dies after attaining age 70 1/2 but before the RBB. Even if the IRA owner himself doesn't have to take the RMD (due to his death before the RBB), an RMD still must be made, correct? It would just be subject to all the Regulations cited above for when the RMD must be taken by the surviving spouse, correct?

[ETA Consulting LLC]

Just think of it this way, the death RMD rules preempt the lifetime RMD rules. So, if taxpayer dies on or before the required beginning date for age 70 1/2 distributions, then the age 70 1/2 distributions no longer apply. The death RMD rules will then apply.

Good luck!

[GMK]

For what it's worth, a few points that are not always presented clearly in articles about this are:

When an article says that the participant "dies before distributions begin" (not on or before, by the way), it generally means before the participant's required beginning date (the April 1 of next year kind of thing). It does not matter whether the participant had or had not received payments from the plan. The definition of when distributions begin will be in your plan document (probably in the distributions section).

The preemption of the death RMD rules take effect beginning with the calendar year after the year in which the participant dies. The participant's lifetime RMD rules govern until the end of the year in which the participant dies. If this means that if the participant would be required to take an RMD for the year in which the participant died, that RMD is to be paid to the beneficiary as soon as it would have had to be paid to the participant (by end of year or the next April 1, as applicable).