Required Distributions for Beneficiaries

[Guest robertcusick]

Participant, married with living spouse, age 77, dies without having filed any forms with custodian. Distributions had been taken for prior years that exceeded even single life minimum. Beneficiaries are spouse (34%), and three younger children (22% each).

Question 1 - What is the IRS going to assume as the method selected? We believe it is joint lie expectancy with spouse, and recalculation of both lives.

Question 2 - We further assume that distributions for the beneficiaries (from a beneficiary IRA, registered in the name of the deceased) will be based on the life expectancy of the oldest (in this case, the spouse) beneficiary, and that upon her death, the remaining beneficiaries will be required to take full account distribution by the end of the year following her death. Is this correct?

Question 3 - We finally assume that the spouse, age 70 can take her portion of the IRA and roll it over into an IRA in her name, and name new beneficiaries and select a new RMD method. Is this correct?

[John Olsen]

The beneficiary will be the DEFAULT beneficiary according to the Custodial agreement. Many such agreements state that, in the absence of an election to the contrary, a surviving spouse shall be deemed to be 100% beneficiary.

What does the Custodial IRA agreement say?

The same holds true with respect to election of recalculation. Some Custodial agreements have a default. If this one is silent on the matter, Recalculation is assumed, per the 408 regs.

Are you SURE that NO FORMS were filed with the Custodian? No beneficiary was EVER named - not even in the original account application? How in the world did the Custodian ever ACCEPT such an account?

To whom does the Custodian say it will pay benefits?

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818

[Guest robertcusick]

John,

Thanks for your response. While the participant DID list beneficiaries on his original application (spouse 34%, three sons 22% each), he did NOT file any other forms.

And yes, the custodian's agreement is silent. They have NO default elections, and will do whatever they are told to do.

Bob Cusick

Investment Insight, Ltd.

914-734-9560

[John Olsen]

OOPS!

I plain OVERLOOKED your having specified that the beneficiary shares WERE stated. (It's tax time, and I'm up to my hips in a couple of Byzantine estate cases. Be kind).

Now that I've bothered to read ALL of what you said [exit self-flagellation mode], I believe that the RECALC issue will, as stated, be controlled by any default in the Custodial agreement. Absent same, it will be recalc/recalc.

Which means that RMDs will be based as you stated in Q.1.

Q.2 - I believe you're right. At surviving spouse's death, his/her LE becomes zero, which would require distribution of the entire balance by 12/31 of the following year.

3. Yes.

One of these days, I am going to learn to SLOW DOWN and read ALL of a message before responding to it. Heck, I may even go so far as to THINK about my response first!

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818

[John Olsen]

Robert's "case study" is a FINE example of the perils of careless beneficiary designations.

If surviving spouse dies soon, the other two beneficiaries' account balances will be forced out. They'll have no REMAINING TERM CERTAIN periods to use.

I really HATE Annual Recalculation for both spouses, except in unusual cases.

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818