Deceased Key employee whose non-spousal beneficiary is a participant in the plan

[Dan]

Owner of a firm dies in 2003, before RMD began. Owner names each of two children as equal beneficiaries. One child takes the owner's position at the firm. So that child is now a Key Employee. Other child is not employed by the firm. Both children elect payments over their life expectancy. Distributions to beneficiaries will begin in 2004. Will Beneficiary/Employee's remaining balance be included in Top Heavy Test for 2005? My expectation is no, but I am having trouble finding reliable guidance.

Thanks for any help.

[Ron Snyder]

The total amount distributed may be included in the T/H calcs for up to 5 years from the date of distribution if it is a related transfer. (However, this is only 1 year in the case of death.) Usually the Key employee should roll the distrib over to an IRA.