Calculating RMD for spousal beneficiary

[Guest M. Martin]

Assistance is needed in identifying the correct life expectancy table to use when calculating RMD’s for spousal beneficiaries from a 401(k) plan.

Participant died in 2004 at the age of 80, his spouse is the sole beneficiary and at the time of his death she was 75. Death occurred after distributions had already begun.

Please confirm if the following is correct:

In computing the benefit in the year of death the factor is determine by using the deceased participants’ age and the Uniform table.

In the year after death you switch to the Single Life table for both the deceased participant and the spousal beneficiary and determine which will give you the longer of the remaining life expectancy.

After determining the deceased participant’s factor you subtract 1 for the first distribution year following his death and for each subsequent year thereafter. The factor for the spouse is recalculated each year using her current age.

So, for the 2007 RMD calculation the deceased participants' factor would be 7.2 and the factor for the spouse would be 11.4.

The ERISA Outline book indicates that if the designated beneficiary was born in the same calendar year or in a later calendar year than the participant was born, you will use the designated beneficiary's remaining life expectancy because it will always be greater.

The question I received from one of my colleagues was: Is there ever a situation where the spouse could elect to use the factor from the Uniform table instead of the Single Life for her payments from the qualified plan?

What if she had rolled the balance (less the RMD) into an IRA?

[Appleby]

In computing the benefit in the year of death the factor is determine by using the deceased participants’ age and the Uniform table.

Yes. For the year of death, the RMD is calculated as if the participant is still alive.

This matters only if the participant had not satisfied his RMD prior to dying.

In the year after death you switch to the Single Life table for both the deceased participant and the spousal beneficiary and determine which will give you the longer of the remaining life expectancy.

After determining the deceased participant’s factor you subtract 1 for the first distribution year following his death and for each subsequent year thereafter. The factor for the spouse is recalculated each year using her current age.

So, for the 2007 RMD calculation the deceased participants' factor would be 7.2 and the factor for the spouse would be 11.4.

If the participant died on or after the RBD, then the assets are distributed over the longer of (a) the remaining life expectancy of the decedent or (b) the life expectancy of the beneficiary.

Since she has a longer life expectancy, distributions would be determined using her life expectancy

Subtracting 1 each year would apply only if the decedent’s remaining life expectancy was being used.

Since she is the surviving spouse , her life expectancy is recalculated

The question I received from one of my colleagues was: Is there ever a situation where the spouse could elect to use the factor from the Uniform table instead of the Single Life for her payments from the qualified plan?

What if she had rolled the balance (less the RMD) into an IRA?

Only if she rolled over the amount to her 'own' retirement account . Only the single life table can be used if the assets remain in the plan

[Guest M. Martin]

Thank you, I appreciate your response.

If she did roll over the amount to her 'own' retirement account, being either a qualified plan or IRA, could she then switch and use the Uniform table to lower her required minimums?

[Appleby]

YW

Yes. If she rolls over the amount to her ‘own’ IRA or other eligible retirement plan, then the uniform table applies …unless she remarries and her new spouse is more than ten years her junior- then she would be eligible to use the joint tables.

[MoShawn]

I am on the receiving end of this issue, and just want to confirm.

I have a participant whose spouse recently passed away. She wants to roll his 401(k) and IRA accounts into her plan. She is the sole beneficiary, and is 43 year old, so presumably the spouse died prior to his RBD. I do not doubt that she can roll his accounts into the plan, but in the case that she should remain with the company for a while, would everything remain under his RBD and life expectancy, or change to her RBD and life expectancy?

[jevd]

I am on the receiving end of this issue, and just want to confirm.

I have a participant whose spouse recently passed away. She wants to roll his 401(k) and IRA accounts into her plan. She is the sole beneficiary, and is 43 year old, so presumably the spouse died prior to his RBD. I do not doubt that she can roll his accounts into the plan, but in the case that she should remain with the company for a while, would everything remain under his RBD and life expectancy, or change to her RBD and life expectancy?

For year of Death, His L/e. After year of death her life expectancy as Appleby stated above.

If she doesn't need the money from the plans then that may be ok. If she needs the income, she should think about leaving the IRA account in his name for her benefit and taking death distributions from it based on her life expectancy without penalty. The qualified plan may or may not allow her to leave the benefit in the plan for the same purpose. Anything she rolls into her IRA is subject to penalty (under 59 1/2) unless there is an exception. She needs to explore these issues with her financial advisor.

I just noticed you said she wants to roll over to her plan. Is her plan a qualified plan or IRA. If qualified plan, she may not have the ability to take any distributions. As I said above. Talk options over with advisor.