RMD's and Non-Spousal Death Distributions

[Gruegen]

A participant died in 2005 at which time he was 52 years old. His designated beneficiary is his brother.

The plan document follows the 2002 RMD Regulations which state that "distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died" (ie - the default is the life expectancy rule). Using the life expectancy rule, payments must have started by December 31, 2006. However, no payments have yet been made. What are the options:

Option #1) Double payment for 2007 - Consider this to be a failure to timely pay a minimum distribution required under 401(a)(9) - - Appendix A, .06 of Rev Proc 2006-27 - - and distribute both the 2006 and the 2007 life expectancy payment in 2007. The 50% excise tax is going to need to be paid by the beneficiary.

Option #2) Transfer him to the 5-Year Rule - Since he did not start payments by December 31, 2006 pursuant to the life expectancy rule, and since the IRS has ruled in PLR 9812034 that it could not extend the deadline for starting distributions under the the life expectancy rule, the beneficiary must receive the entire account by December 31, 2010.

Any help is appreciated.