MINDI to Surviving Spouse

[Guest SCUDDESLER]

A participant in a qualified retirement plan died in September 2002. Since 1999, he had been receiving an annual required minimum distribution (a "MINDI"). His sole designated beneficiary is his surviving spouse (who is currently 74).

No MINDI was made to the participant (in fact no distribution was made to the participant) between January 1, 2002, and the date of his death in September 2002. In addition, relying on the advice of our TPA, no distribution, MINDI or otherwise, was made to the participant's designated beneficiary between the date of his death in September 2002 and December 31, 2002. In fact, no distribution has been made from the participant's account balance since November 2001 (when the participant drew-out his 2001 MINDI).

What rules, if any, govern a surviving spouse's distribution options under the scenario described above? May the surviving spouse simply stop all MINDIs (and, in fact, all distributions) for some period of time following the participant's death? Is it OK that no 2002 MINDI was made? Does the surviving spouse simply have to take a full distribution of the participant's account balance within 5 years of the participant's date of death (this is what the TPA says is the case)?

Our accountant believes, but is not sure, that the TPA was not correct in advising our plan not to make a 2002 MINDI and believes that the surviving spouse may now have to pay a 50% excise tax on the amount that should have been distributed as a MINDI in 2002. These rules seem too confusing, so I need your help in figuring out whether my accountant or TPA is correct. Thanks so much for any comments or suggestions.

[jaemmons]

Since the deceased participant was receiving MRD's, post death distributions must be paid at least as rapidly as before. Treasury Regulation 1.401(a)(9)-2 Q&A 5.

Yes a "mindi" should have been paid in 2002. The 5 year rule is only applicable to death benefit payment prior to the deceased participant reaching their required beginning date.

[Guest SCUDDESLER]

Thanks for your comments. What about a MINDI for 2003? The participant had never elected a form of distribution. This plan is not subject to the QJSA rules. The participant was merely issued his annual MINDI. When you say that the surviving spouse must receive payments at least as rapidly as the participant was receiving payments before his death, do you mean that the surviving spouse must receive at least an annual distribution? I guess the next question is, if so, how is the amount of the annual distribution calculated? Can it be any amount (although our plan only permits a lump sum or monthly installments over the spouse's projected life expectancy) or do the MINDI rules dictate the amount of each installment? Thanks again for your help.

[jaemmons]

At least as rapidly is based means that the spouse continues to receive a minimum required distribution from the plan, until the total account is exhausted or transferred to an IRA. The 2003 mrd would be based upon the spouse's (assuming they are the designated beneficiary) life expectancy as determined by h/her age in 2003. The forms of benefit options (e.g.- lump sum, installment, life annuity, etc.) are irrelevant, as the mrd is based upon life expectancies and is paid out as an annuity payment. Even if the plan does not allow for annuity payments, the mrd amount is determined as an annuity and is paid out as such.

[Guest SCUDDESLER]

Again, thank you very much for your responses. I guess I need to contact the TPA.

[Guest crosseyedtester]

So the 2003 mrd is based upon the spouse's life expectancy as determined by her age in 2003.

What life expectancy is the 2002 mrd payment based on? (2002 is the year of death of married participant already receiving mrd payments).

Thank you very much.

[jaemmons]

The mrd amount for the year of death still uses the same life expectancies for the participant and the spouse. The deceased participant's life expectancy does not go to "0" until the year following the year of death, whereby mrd's are then based upon the life expectancy of the surviving spouse.

[mbozek]

Why not have the spouse apply for a waiver of the 50% penalty tax based upon reliance on advice from the TPA. The IRS routinely gives waivers of tax liability if the taxpayer can prove reliance on a tax advisor or administrator for incorrect advice. Of course the advisor will have to admit in writing providing incorrect advice.