IRA Distribution Options

[Guest SPollock]

I have a client who recently passed away. He had begun taking distributions from his IRA before he died. His two children are the beneficiaries. (wife is deceased) What options do the children have for receiving the IRA assets? Can they continue to receive the money over the "projected" lifetime of their deceased father or must they take it over a short period, i.e. 5 years or less?

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[BPickerCPA]

The issue is not whether he was taking distributions, but whether he was past Apr 1st of the year after he turned age 70½ (RBD). In other words, was he taking MANDATORY distributions. Assuming that he was, THERE IS NO FIVE YEAR RULE! That only applies to death before the required beginning date.

Now you need to now if (A) the children were designated beneficiaries as of the RBD and (B) was the client recalculating his life expectancy.

ASSUMING the children were the designated beneficiary and that the decedent was NOT recalculating, then the heirs can take the remaining balance of the IRA out based upon the life expectancy of the oldest beneficiary as of the required beginning date, reduced by the number of intervening years of distributions. So if, for example, at the RBD the oldest beneficiary's life expectancy was 40 years, and there have been 5 years of distributions since then, the beneficiaries have 35 years to remove the money.

Remember that beneficiaries (non spouse) CANNOT do rollovers.

[Guest mcdonnell]

If the client was not recalculating, then the heirs should be able to use the joint life expectancy factor at the RBD reduced by the number of intervening years.

[jlf]

Multiple beneficiaries of an IRA may use their own individual life expectancies in calculating their MRD, notwithstanding the fact that the IRA owner passed the IRA's RBD. See letter rulings: 1999-31048, 1999-26189, 1999-25572.

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[BPickerCPA]

[[Multiple beneficiaries of an IRA may use their own individual life expectancies in calculating their MRD, notwithstanding the fact that the IRA owner passed the IRA's RBD. See letter rulings: 1999-31048, 1999-26189, 1999-25572.]]

Very interesting. Totally incorrect (or worse, bogus).

PLR 199931048 specifically talks about a decedent who died BEFORE his RBD. The other 2 PLR's, 199926189 and 199925572, don't even exist.

At this point in time, if the decedent was passed his RBD, multiple beneficiaries CANNOT use their own life expectancies to compute after death MRDs. You're stuck with the shortest life expectancy.

[Guest mcdonnell]

If the client elected not to recalculate as of the RBD, then the calculation is based on the joint life expectancy factor reduced by the number of intervening years. The life of the oldest beneficiary would not be used.

[BPickerCPA]

[[if the client elected not to recalculate as of the RBD, then the calculation is based on the joint life expectancy factor reduced by the number of intervening years. The life of the oldest beneficiary would not be used.]]

The joint life expectancy is the joint life of the account holder and the OLDEST beneficiary. So while the life of the oldest beneficiary is not used, it is surely a factor!

[Guest mcdonnell]

((Assuming the children were the designated beneficiary and that the decedent was NOT recalculating, then the heirs can take the remaining balance of the IRA out based upon the life expectancy of the oldest beneficiary as of the required beginning date, reduced by the number of intervening years of distributions. So if, for example, at the RBD the oldest beneficiary's life expectancy was 40 years, and there have been 5 years of distributions since then, the beneficiaries have 35 years to remove the money.))

Just wanted to clarify the example in this paragraph.

[Bruce Steiner]

Assuming the children were the beneficiaries ever since the IRA owner reached his required beginning date, whether he was recalculating his life expectancy will make very little difference.

During the IRA owner's lifetime, the required distributions will be based upon the minimum distribution incidential benefit (MDIB) rules. After the IRA owner's death, the joint and survivor life expectancy (if he elected term certain) is only slightly longer than the child's life expectancy, since the joint and survivor life expectancy is based primarily on the child's life expectancy. Note that while he could recalculate his own life expectancy, he can't recalculate the children's life expectancies for purposes of the distributions after his death (though the MDIB rules effectively recalculate the children's life expectancies during the IRA owner's lifetime).

Assuming the IRA owner reached his required beginning date, it's not yet completely clear whether, after his death, each child can use his/her own life expectancy, or whether all of the children have to use the oldest child's life expectancy. Most commentators have assumed that all of the children have to use the oldest child's life expectancy. But I think an argument can be made that there are effectively separate shares, since each child receives an equal percentage interest, and since (given the MDIB rules) there is no opportunity to take unfair advantage of the situation. In this regard, PLRs 9004072 and 9012009, while not persuasive, may be helpful.

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL

[Guest SPollock]

Thanks to ALL of you for the information and help!!

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