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RMD to Spouse After Death


austin3515

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5% owner dies after RBD (back in 2008), and his wife is the sole beneficiary. The wife is younger than the participant and as of December 31, 2010 is age 85.

So do I go to the single life expectancy table and calcualte her minimum distriubtion as her 12/31/09 balance divided by 7.6?? Why is this factor SO much smaller than the regular RMD table which would call for a factor of 14.8???

Did I screw up by not telling her to roll to an IRA, where I presume she would have been subject to the regular rmd tables?

Austin Powers, CPA, QPA, ERPA

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The "regular (Uniform Life) table" is merely a special joint table with the survivor being 10 years younger. You'd get the same answer by looking at the joint table for ages 85 & 75.

My understanding is she could take her 2010 MRD (using the single life table), then rollover to an IRA and "make it her own" and next year be able to use the "regular table". But if she merely rolled over w/out "making it her own IRA" then she'd still use the single life table.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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for all practicallity, if you have ever compared the 2 tables, the factors used for the uniform lifetime table are 12 years different than single life. (at least for most of the factors once you get into the range you are talking about). why the IRS chose that I have no idea.so age 85 single life =7.6 = 97 on the joint table.

guess when a spouse dies, the life expectancy drops dramatically in the eyes of the IRS. actually, remeber, the table assumes a 10 year difference, so if the wife is 85 technically the table assumes the husband would have been 95 or a factor of 8.6 (not 14.8)

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The "regular" Uniform Life table originated when the Service released the new 401(a)(9) regs in 2001/2002. Since the regs changed the date of determining the beneficiary from the RBD to after death of the participant, they provided the automatic presumption of a spouse 10 years younger; this reduced a lot of administrative burden of looking up J&S factors; it also removed disparity where Person A's spouse was a year or two younger than Person B's.

See page 7 of T.D. 8987 here: http://www.unclefed.com/ForTaxProfs/irs-regs/2002/td8987.pdf

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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I'm doing some more research on all of this and I'm fundung that a participant can roll their inherrited 401k into their an IRA and "treat it as their own." If this had been done, would she have been able to use the uniform life table as opposed to the single life table?

What would have been the deadline for doing this? If the participant died over 2 years ago, would it still be an option?

Austin Powers, CPA, QPA, ERPA

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There once was a fellow named Austin

Who complained the results were a sin

The tables he tried

were so bad so he cried

These RMD calcs are exhaustin'

..............................................

of course, as I understand it, these are only minimum distributions.

I don't think there is anything to prevent you from taking the minimum distribution this year, and rolling the remiander of the balance into an IRA.

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I'm confused. How could the RBD for a 5% owner, who is older than a now 85 year-old spouse, be 2008? I don't know that it matters but maybe there are incorrect facts that could affect the conclusions.

And if the participant does have a designated beneficiary, then the RMD is is based on the longer of the bene's life expectancy or the participant's life expectancy determined in the year of death and reduced by one each year thereafter.

Ed Snyder

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But if she DID do that, does the table revert back to the uniform life?

At risk of repeating myself:

My understanding is she could take her 2010 MRD (using the single life table), then rollover to an IRA and "make it her own" and next year be able to use the "regular table". But if she merely rolled over w/out "making it her own IRA" then she'd still use the single life table.

This also conforms to other places in the Regs and Pub 590 that says a surviving spouse can elect at anytime to make the IRA their own (ie, not restricted to year of death or such).

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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Thankl you masteff - I had missed or forgottern what you wrote earlier.

So, would you agree that if a participant dies after payments begin and the beneficiary is the sole spouse, you should automatically tell the spouse/beneficiary to roll to an IRA and treat it as their own? Should this be like a "golden rule" of these types of rmd's.

Austin Powers, CPA, QPA, ERPA

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Ooh, I hate that word "automatically." I'm sure there are situations where it might not be beneficial? Keeping the money in the plan for asset protection against lawsuits? I haven't thought it through, but what if the surviving spouse is lots older? Etc?

Perhaps a "rule of thumb," with caveats that there are situations where it may not be in the surviving spouse's best interests?

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but if there is more than 10 years difference in age it could well be the single life is better. (or if we are not age 80 yet! or something like that)

I like your "is the sole spouse". are you implying that you process plans that have more than one spouse? :lol:

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I keep telling my wife that an international man of mystery can't be tied down in this way, but she's still not buying it...

OK, here's a doozy: Participant dies at the age of 69. Plan uses the 5 year year. Spouse is same age as participant and waits 4 years before closing the account. Is the spouse now able to roll it to her "own IRA" and essentially skip out on 3 years of RMD's?

Anyone have a good recommendation for a book just on RMD's?

Austin Powers, CPA, QPA, ERPA

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if death proceeds RMD then it depends on the document

If no beneficiary specified, and document does not contain a provision, must use the 5 yr method Treas Reg. § 1.401 (a)(9)-3, Q&A-4(a)(2)

Austin, you old 'man of mystery' - possibly the top secret information you are looking for is buried in something as simple as Publication 575. well, besides the regs, but my copy is in an unintelligible foreign language that I don't understand.

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I keep telling my wife that an international man of mystery can't be tied down in this way, but she's still not buying it...

OK, here's a doozy: Participant dies at the age of 69. Plan uses the 5 year year. Spouse is same age as participant and waits 4 years before closing the account. Is the spouse now able to roll it to her "own IRA" and essentially skip out on 3 years of RMD's?

Anyone have a good recommendation for a book just on RMD's?

According to Reg 54.4974-2 Q/A-4(b)(3) there is no RMD until the fifth year after the death of the employee. Therefore any amount rolled over in year 4 would not be considered an MRD which cannot be rolled over. The MRD from the plan in year 5 would be 0.

This option would be available in the case of any participant who dies before April 1 of the year after 70 1/2 is attained b/c the five year deferral is available until MRDs are required and MRDs are not required until April 1.

mjb

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According to Reg 54.4974-2 Q/A-4(b)(3) there is no RMD until the fifth year after the death of the employee. Therefore any amount rolled over in year 4 would not be considered an MRD which cannot be rolled over. The MRD from the plan in year 5 would be 0.

This option would be available in the case of any participant who dies before April 1 of the year after 70 1/2 is attained b/c the five year deferral is available until MRDs are required and MRDs are not required until April 1.

I believe - I'm pretty sure - that the 5 year election carries over to the recipient plan or IRA. So while it is true that the RMD from the OLD plan is 0 in year 5, it is 100% in the recipient plan or IRA. That is, no, you don't get to skip on 3 years of RMDs.

I believe there was an incorrect conclusion earlier in this thread and noted it. Basically, if a PARTICIPANT'S spouse dies, no that does not change the RMD one whit, as long as they still have a (any) designated beneficiary. And if the participant dies, the spouse follows the "at least as rapidly" rule which does not markedly increase the RMDs.

Ed Snyder

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According to Reg 54.4974-2 Q/A-4(b)(3) there is no RMD until the fifth year after the death of the employee. Therefore any amount rolled over in year 4 would not be considered an MRD which cannot be rolled over. The MRD from the plan in year 5 would be 0.

This option would be available in the case of any participant who dies before April 1 of the year after 70 1/2 is attained b/c the five year deferral is available until MRDs are required and MRDs are not required until April 1.

I believe - I'm pretty sure - that the 5 year election carries over to the recipient plan or IRA. So while it is true that the RMD from the OLD plan is 0 in year 5, it is 100% in the recipient plan or IRA. That is, no, you don't get to skip on 3 years of RMDs.

See PLR 200242044.

I dont understand your logic. If the spouse withdraws 100% of the account balance in year 4 then the 5 year requirement of IRC 401(a)(9)(B)(ii) has been satisfied. Once the funds are rolled over to the IRA then the MRDs for the IRA apply, not the MRD from the transferror plan. See reg. 1.401(a)(9)-7 Q/A-2.

mjb

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I remember that PLR and remember discussing it...whether my conclusions are consistent, I don't know. But I think they are citing the 5-year rule to explain why it does NOT apply, since the surviving spouse had already taken several distributions, and they mention that the 5-year rule "generally" applies to distributions where there is no designated beneficiary.

As for my logic, it is explicitly stated that non-spouse beneficiaries may not use the 5 year rule in the distributing plan and then switch to the life expectancy rule in the receiving plan; that is, the election carries over - Notice 2007-7. The fact that they spelled this out for non-spouse beneficiaries may imply that it is ok for spousal beneficiaries, I don't know.

Ed Snyder

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I remember that PLR and remember discussing it...whether my conclusions are consistent, I don't know. But I think they are citing the 5-year rule to explain why it does NOT apply, since the surviving spouse had already taken several distributions, and they mention that the 5-year rule "generally" applies to distributions where there is no designated beneficiary.

As for my logic, it is explicitly stated that non-spouse beneficiaries may not use the 5 year rule in the distributing plan and then switch to the life expectancy rule in the receiving plan; that is, the election carries over - Notice 2007-7. The fact that they spelled this out for non-spouse beneficiaries may imply that it is ok for spousal beneficiaries, I don't know.

In PLR 200242044 the IRA owner died in 1998 when he attained 70 1/2 but before the MRD were required on 4/1/99. The surviving spouse elected to the take periodic payments for 5 years and at the time of the ruling had taken three payments- 1999, 2000 and 2001. The spouse requested a PLR allowing the rollover of the balance of the IRA in 2002, the 4th year after death of the IRA owner. Citing the above reg and Reg 1.408-8 A-5 the IRS confirmed that the spouse could rollover the balance of the IRA to her own IRA in 2002 and the distribution would not be taxable to the spouse in that year.

The only difference between facts in the ruling and Austin's scenario is that if the 5 year payout of a distribution from a qualified plan is elected by the spouse, the rollover to an IRA must occur no later than the end of the 4th year to avoid application of the MRD rule under reg. 54-4974-2. If the decedent is the owner of an IRA, a surviving spouse who fails to take the MRD of the account balance by the end of the 5th year after the IRA owner's death would not be subject to the 50% excise tax for failure to take the MRD because such failure merely results in the spouse being deemed to treat the inherited IRA as her own IRA under Reg. 1.408-8 A-5. RMDs would not commence until the year the spouse attains 70 1/2.

mjb

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Okay guys, here's the loop hole (in my opinion).... it's the whole election to "treat as the spouse's own IRA" election. From Reg 1.408-8 Q&A-5 (emphasis added):

(a) The surviving spouse of an individual may elect, in the manner described in paragraph (b) of this A-5, to treat the spouse's entire interest as a beneficiary in an individual's IRA (or the remaining part of such interest if distribution thereof has commenced to the spouse) as the spouse's own IRA. This election is permitted to be made at any time after the individual's date of death. In order to make this election, the spouse must be the sole beneficiary of the IRA and have an unlimited right to withdraw amounts from the IRA. If a trust is named as beneficiary of the IRA, this requirement is not satisfied even if the spouse is the sole beneficiary of the trust.
If the surviving spouse makes the election, the required minimum distribution for the calendar year of the election and each subsequent calendar year is determined under section 401(a)(9)(A) with the spouse as IRA owner and not section 401(a)(9)(B) with the surviving spouse as the deceased IRA owner's beneficiary.
However, if the election is made in the calendar year containing the IRA owner's death, the spouse is not required to take a required minimum distribution as the IRA owner for that calendar year. Instead, the spouse is required to take a required minimum distribution for that year, determined with respect to the deceased IRA owner under the rules of A-4(a) of Sec. 1.401(a)(9)-5, to the extent such a distribution was not made to the IRA owner before death.

So, I see it as the election counts as a reset button switching the MRD from 401(a)(9)(B) to 401(a)(9)(A), thus making the 5-year rule magically go "poof".

Edit: of course one should probably then argue that the distribution of the full amount in year 4 is an MRD and thus ineligible for rollover.

Edit 2: @MJB - I also note the PLR you cited explicity notes the Final 1.401(a)(9) regs of 2002 allow the use of the 1987 Proposed regs for purposes of that PLR issued in 2002, so subsequent years have to look to the newer 2002 regs which may alter the outcome.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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Okay guys, here's the loop hole (in my opinion).... it's the whole election to "treat as the spouse's own IRA" election. From Reg 1.408-8 Q&A-5 (emphasis added):

(a) The surviving spouse of an individual may elect, in the manner described in paragraph (b) of this A-5, to treat the spouse's entire interest as a beneficiary in an individual's IRA (or the remaining part of such interest if distribution thereof has commenced to the spouse) as the spouse's own IRA. This election is permitted to be made at any time after the individual's date of death. In order to make this election, the spouse must be the sole beneficiary of the IRA and have an unlimited right to withdraw amounts from the IRA. If a trust is named as beneficiary of the IRA, this requirement is not satisfied even if the spouse is the sole beneficiary of the trust.
If the surviving spouse makes the election, the required minimum distribution for the calendar year of the election and each subsequent calendar year is determined under section 401(a)(9)(A) with the spouse as IRA owner and not section 401(a)(9)(B) with the surviving spouse as the deceased IRA owner's beneficiary.
However, if the election is made in the calendar year containing the IRA owner's death, the spouse is not required to take a required minimum distribution as the IRA owner for that calendar year. Instead, the spouse is required to take a required minimum distribution for that year, determined with respect to the deceased IRA owner under the rules of A-4(a) of Sec. 1.401(a)(9)-5, to the extent such a distribution was not made to the IRA owner before death.

So, I see it as the election counts as a reset button switching the MRD from 401(a)(9)(B) to 401(a)(9)(A), thus making the 5-year rule magically go "poof".

Edit: of course one should probably then argue that the distribution of the full amount in year 4 is an MRD and thus ineligible for rollover.

Masteff:

If as you agree the regs allow a rollover of the deceased's IRA to be subject to the MRD rules that apply to the spouse as IRA owner and since the IRS affirmed in ruling 3 of PLR 200242044 that the surviving spouse could rollover the balance of the deceased spouses's IRA in year 4 to her own IRA and the distribution would NOT be included in her income under IRC 408(d)(1) even though she had elected the 5 year option, what is the basis for arguing that the distribution in year 4 is taxable as a MRD when reg 54.7974-2 Q/A-3© states that no distributions are required until the 5th year after death?

mjb

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Edit: of course one should probably then argue that the distribution of the full amount in year 4 is an MRD and thus ineligible for rollover.

Okay, I retract that...

Step 1, rollover from inherited QP account to inherited IRA. See MJB's comments supporting that rollover is permitted prior to year 5.

Step 2, invoke Reg 1.408-8 Q&A-5 to treat inherited IRA as own IRA. Q&A-5 says two important things. #1 - That 401(a)(9)(A) now applies, thus breaking linkage to the 5-year rule. #2 - That #1 applies for the year of the election... so it's like going back to January 1st and magically becoming the owner and so any distribution during the year or after is under 401(a)(9)(A) and not under the 5-year rule.

This is the ultimate QP stretch plan (for an older spouse). But only if done prior to year 5 because in year 5 it's not a rollover, it's the final distribution of the full balance.

Question: would you make a spouse who's past their RBD take an MRD (from the IRA that's now treated as their own) for that year (based on them being the owner and not a beneficiary), just to be safe since the election applies for the year and Reg 1.401(a)(9)-7 Q&A-2 would suggest you add the rollover to the balance of the IRA?

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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