RMD for spouse's estate

[Guest terric]

I have a situation where the participant died in 2002 after obtaining age 70 1/2 while in pay status. He had no designated beneficiary. The plan document states that the beneficiary would be his spouse. His spouse died in 2003 and she did not have a designated beneficiary. She was over age 70 1/2 at the time of her death. The plan document states that her estate would become the beneficiary. For RMD purposes, she would be considered as having no beneficiary.

1. How do I calculate the 2004 RMD for her? Is it based on her age in the year of her death using the single life table and subtracting one from the applicable factor each year?

2. Is there a time frame in which the entire benefit has to be paid to her estate?

Thank you for any insight!

[Mary Kay Foss]

Was a 2002 distribution paid to the participant or his spouse? If not, there is exposure to a 50% penalty for that year.

The spouse should have taken a 2003 distribution based on the 12/31/2002 value in the account. If that amount wasn't paid, it should be paid to her estate ASAP -- another possible 50% penalty.

Now for your real question. Since she died in 2003, you need her age in 2003. Determine the factor for that age based upon the single life table. Reduce the factor by 1.0 to get the divisor for the 2004 RMD.

The entire amount would be paid to the estate by the end of the single life period (reduced by 1) determined above. Subsquent payments would be determined by reducing the factor by 1 for each of the later years.

These rules are used to calculate Required Minimums. The executor of the estate could claim payments at a faster pace. If the executor wants to close the estate so he/she can be discharged before the payment period is over, he/she can ask the probate court to assign interests in the IRA to the heirs.

The assignment will do nothing to lengthen or shorten the payout period but it will allow the estate to be closed. Each heir can cash in their share if they want or continue to receive annual payments.