RMD Needed?

[Basically]

I have never heard of this situation.  A full time employee old enough to need an RMD but not required to take one because she isn't an owner (just an employee) died in December 2021.  Technically she wasn't employed as of her date of death.  That wouldn't kick in that she needed to take an RMD for 2021 based on her 2020 balance, would it?

Maybe the short question to ask is, do deceased plan participants (who have not been paid out yet) need to take RMDs?  I guess technically they still aren't owners so no?

I just read that "once a participant starts taking an RMD they must continue taking one, even after death".  The twist is that this participant was never required to take one due to the fact that they were an employee and not an owner.  Would that mean that her account is not required to distribute an RMD for 2021 because she was just an employee? Am I answering my own question?

[C. B. Zeller]

The short answer is yes, there is an RMD requirement. The details of how much, to whom, and when, will depend on who the beneficiary is, and the provisions of the plan document. In the plan document there is probably a section titled "Death before required beginning date" - start there. Don't forget to read the amendments for the SECURE Act.

[Basically]

So an employee who was never required to take an RMD, if they die then the RMD requirement will kick in? The beneficiary will be required to take it until the funds are distributed?

If so, when? Beginning the following year?  The year they died?  This participant died in December 2021. 

Appreciate your help.

[Mr Bagwell]

46 minutes ago, Basically said:

A full time employee old enough to need an RMD but not required to take one because she isn't an owner (just an employee) died in December 2021.  Technically she wasn't employed as of her date of death.

So the employee terminated and died in December 2021?  Little confused on the details.

[Basically]

Never terminated, just died December 2021. (12/22/21 I'm told)  

Because she died would she be considered terminated as of her date of death? and as such be required to take a 2021 RMD based on her 2020 year end balance?  I can see the beneficiary being required to take a 2022 RMD based on her 2021 balance. 

[Mr Bagwell]

(Comments for you and those in the future that are sharpening their RMD tools)

I attended a class that harped on 2 important concepts for RMDs.   1.  Required Beginning Date and 2. Distribution Calendar Year.  I haven't mastered these two concepts, but I always keep them in mind.  To tell you the truth, a co-worker does the processing of the RMDs so I don't stay as close as I should to RMDs. 

Do your researching, but I suspect the deceased participant's Required Beginning Date was 4/1/2022 for a Distribution Calendar Year of 2021 as the date of death is the Separation of Service, 12/22/2021.

Now you are past the 4/1/2022 RBD.... probably not a fault of your own, but things may be more complicated. (50% excise tax)

Hope this helps.

 

[C. B. Zeller]

1 hour ago, Basically said:

So an employee who was never required to take an RMD, if they die then the RMD requirement will kick in? The beneficiary will be required to take it until the funds are distributed?

If so, when? Beginning the following year?  The year they died?  This participant died in December 2021. 

Appreciate your help.

There is a life expectancy rule, a 5-year rule, and a 10-year rule. Which of these applies will depend on who the beneficiary is, and what provisions are in the plan document. Read the plan document and see if it answers your questions.

[Basically]

Mr. Bagwell, that is what I have been told.  2021 becomes the beginning date, must take the RMD by 4/1/2022

C.B. Zeller, the beneficiary is the spouse.  It is my understanding that there is an exception to the 10 year rule.  He can roll it all into an IRA and simply take normal RMDs (no 10 year rule).
You are also correct, they have not/did not taken the RMD by 4/1/22.  This is a CPA asking me what I know, this is not my client.  They will deal with late penalties.

I am assuming the spouse beneficiary will need to take an RMD (for 2022) prior to rolling it all over to his IRA, correct?  And use the table for beneficiaries, not the uniform life?

[Bird]

1 hour ago, Basically said:

Mr. Bagwell, that is what I have been told.  2021 becomes the beginning date, must take the RMD by 4/1/2022

No. RMDs are based upon the death of the participant, not termination of employment.

[Basically]

1 hour ago, Bird said:

No. RMDs are based upon the death of the participant, not termination of employment.

Ok, so because she is old enough to need an RMD and because she died that is what triggers the required RMD.  

[rocknrolls2]

Since no RMD was required to be paid to the participant for 2021, no RMD would be payable to a beneficiary attributable to the 2021 distribution calendar year. The post-death RMDs must begin by 12/31 of the year following the year of the participant's death. Based on your facts, the beneficiary would need to commence RMDs by no later than 12/31/2022 with respect to the 2022 account balance.

[K-t-F]

I agree rocknrolls2.   

For 2021 the beneficiary does not need to take an RMD
For 2022 the beneficiary will need to take an RMD based on the 2021 balance.

So, the beneficiary will need to take the 2022 RMD PRIOR to taking a full distribution of his inheritance... correct?

[Basically]

Appreciate all the responses, thanks for your help!