Required minimum distribution, death, and multiple beneficiaries

[Guest lhinson]

Here is the situation:

Participant (5% owner) dies this year. His named beneficiary was his wife, who predeceased him. He never completed a new beneficiary form.

The plan document states that in the absence of a living beneficiary, the beneficiary is the kids, then parents, then estate if there are no kids or parents.

The (10) kids want the money to go to the estate.

Now, I would guess that at the very least, the kids need to get an equal share of the RMD? Then the rest can go to the estate? Or do they need to also get an equal share of the remainder? Also, to further muddy things up, there were 11 kids, but one of them died. Do we need to include his beneficiaries in the mix?

Not even sure how to begin this one. I have been advised to have their ERISA counsel give us direction, but since he wants us to also distribute enough RMD money to cover their IRA RMDs (they each inherited an IRA), I'm a little leery. Is there a cite somewhere that would specifically state you can't take an IRA RMD from a qualifed plan?

Thanks

[Bird]

I think you'll find that Treas Reg 1.408-8, A-9 says you may calculate IRA minimum separately but take the total from one. You won't find a similar reference for qualified plans so you can't do it.

It's not clear if RMDs have begun already. If so, and if the 2005 RMD hasn't been paid yet, it goes to the beneficiary. In that case, I think the bene is determined as of the date of payment, so the kids would have a chance to disclaim the 2005 RMD. You haven't said if the parents are still alive, but I get the feeling they're not, so that would send the distribution to the estate.

For the death benefits, if RMDs have begun already, the bene is determined as of 9/30 of the year following death and death RMDs must begin by 12/31 of the year following death. If the kids disclaim, then following the assumptions above the estate becomes the bene.

Whether the 11th child, who predeceased the father, is entitled to a share should be described in the plan. What's the exact language?

[WDIK]

Is there a cite somewhere that would specifically state you can't take an IRA RMD from a qualifed plan?

This citation may also help.

Sec. 1.401(a)(9)-8 Special rules.

Q-1. What distribution rules apply if an employee is a participant in more than one plan?

A-1. If an employee is a participant in more than one plan, the plans in which the employee participates are not permitted to be aggregated for purposes of testing whether the distribution requirements of section 401(a)(9) are met. The distribution of the benefit of the employee under each plan must separately meet the requirements of section 401(a)(9). For this purpose, a plan described in section 414(k) is treated as two separate plans, a defined contribution plan to the extent benefits are based on an individual account and a defined benefit plan with respect to the remaining benefits.

[jevd]

IRS Notice

The above URL may be of interest regarding the IRA's

[Guest lhinson]

Thank you all for the time you took to reply. After all that, the client decided to take my word for it on the RMD amount (although I think she thinks I am making it up). We are distributing equal shares to each beneficiary including the deceased (his children will share his portion). They each will get two checks, one for the RMD and one for the rest. I appreciate your help.

Go Packers!