70.5 Distributions required for Surviving Spouse?

[Dennis Povloski]

We have a plan where a participant past his required 70.5 start date died. Since this was a small plan designed around him, the plan terminated. The surviving spouse (who was also a participant in the plan and not yet 70.5), received his distribution and rolled it and her benefit into an IRA when the plan terminated.

It's my understanding (and I'm relatively new to the business, so please correct me if I'm wrong), that at this point, she has received a full distribution of his benefit, so she will not be required to take a 70.5 based on his benefit in the plan. She will only be required to start receiving 70.5s when she becomes eligible and the amount will be determined using the IRA rules.

The client's CPA says that he went to a conference and was told that she still had to take 70.5s based on his age on the amount she received from him??? Is there something new in effect, or a special provision in the 70.5 rules for deceased participants that I don't know about?

[Belgarath]

See 1.401(a)(9)-2, Q&A-5. This is for a situation where the participant dies ON OR AFTER the RBD. Minimum distributions from the plan, even to a spouse in this situation, must be distributed "at least as rapidly" as under the distribution method being used as of the date of his death.

However, as you mention, a surviving spouse has a rollover option under 402©(9). Any minimum distribution required for the year of death is not an eligible rollover distribution, and needs to be distributed. The balance, if distributed as an eligible rollover distribution, can be rolled to an IRA (or other eligible retirement plan) and further minimum distributions (when required) will then be calculated based upon the life expectancy of that surviving spouse.

[Mary Kay Foss]

If the decedent did not take his RMD in the year of death, the spouse must take the amount that he was supposed to take. That amount is not eligible for rollover. Once that requirement has been satisfied, the survivor is not required to take anything until she reaches age 70-1/2.

[Dennis Povloski]

Good Deal! Thank you all for your help!