RMD and death in year one turns 70.5

[Guest BruceC]

I'm having trouble finding this answer, so thought someone here might know.

An individual turns 70.5 in 2008 and dies prior to the RBD of 4/1/09. Is the RMD for 2008 required to be taken out by named IRA beneficiaries? I know this is the case on or after RMD date, but I think I've read that death prior to RMD does not require that the first RMD actually be taken, even though the decedent may have taken part or all of the RMD by the date of death.

Thanks

BruceM

[ERISAnut]

NO, he does not. While the first distributions from the plan must satisfy the RMD, in this case there is not RMD due to the beneficiary. Since the taxpayer actually died prior to the RBD, the death distribution rules effectively preempts the need to take the first Age 70.5 RMD as this was not due to begin until April 1, 2009.

Now, this would be different had the RBD been reached, and another RMD would be due on January 1 of the current year, but by December 31st of that year.

Therefore, the first death distribution to the beneficiary is not due until December 31, 2009 (the end of the year following the year of death) since the taxpayer died in the year he turned 70.5. I am assuming the beneficiary is the spouse, but with this particular fact pattern, it does not matter.

Hope this helps.

[J Simmons]

ERISAnut, what's the citation for no RMD for year of death after reaching age 70.5 but before RBD?

[Appleby]

How about Treasury Regulation § 1.401(a)(9)-3 ?

[J Simmons]

Thanks, Appleby. That seeming bright line is clouded a little however by the definition of distribution calendar year in the context of a DC plan, as set forth in Treas Reg § 1.401(a)(9)-5, Q&A-1(b) defined to include the calendar year that one reaches age 70¹/₂.

(b) Distribution calendar year. A calendar year for which a minimum distribution is required is a distribution calendar year. If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee attains age 70¹/₂, the employee's first distribution calendar year is the year the employee attains age 70¹/₂. * * *

[Guest mjb]

Thanks, Appleby. That seeming bright line is clouded a little however by the definition of distribution calendar year in the context of a DC plan, as set forth in Treas Reg § 1.401(a)(9)-5, Q&A-1(b) defined to include the calendar year that one reaches age 70¹/₂.

(b) Distribution calendar year. A calendar year for which a minimum distribution is required is a distribution calendar year. If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee attains age 70¹/₂, the employee's first distribution calendar year is the year the employee attains age 70¹/₂. * * *

From Pub 590, Chapter 1 Traditonal IRAs, When Must You Withdraw Assets: "If an IRA owner dies after reaching 70 1/2 but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date."

[J Simmons]

Thanks, mjb. Realizing that the OP is about an IRA, do you know if the IRS has a similar pronouncement re RMD if the benefits are in a DC plan at the time of death?

[jevd]

Thanks, Appleby. That seeming bright line is clouded a little however by the definition of distribution calendar year in the context of a DC plan, as set forth in Treas Reg § 1.401(a)(9)-5, Q&A-1(b) defined to include the calendar year that one reaches age 70¹/₂.

(b) Distribution calendar year. A calendar year for which a minimum distribution is required is a distribution calendar year. If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee attains age 70¹/₂, the employee's first distribution calendar year is the year the employee attains age 70¹/₂. * * *

Here is that complete section:

(b) Distribution calendar year.

A calendar year for which a minimum distribution is required is a distribution calendar year. If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee attains age 70½ , the employee's first distribution calendar year is the year the employee attains age 70½. If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee retires, the employee's first distribution calendar year is the calendar year in which the employee retires. In the case of distributions to be made in accordance with the life expectancy rule in §1.401(a)(9)-3 and in section 401(a)(9)(B)(iii) and (iv), the first distribution calendar year is the calendar year containing the date described in A-3(a) or A-3(b) of §1.401(a)(9)-3, whichever is applicable.

Emphasis added.

This section shifts the Required distribution to the Beneficiary to the year following death.

[J Simmons]

That emphasized portion is for MRDs based on the beneficiary's life expectancy (as an exception to the 5 year rule), not MRDs based on the employee reaching age 70 1/2. What relieves the year in which the employee reaches 70 1/2 from being a distribution calendar year because he then dies before April 1 of the next calendar year, as clearly delineated in the first two sentences of Treas Reg § 1.401(a)(9)-5, Q&A-1(b)?

[Guest BruceC]

Thanks very much for the replies...particularly the direct quote from 590, which I somehow managed to miss

BruceM

[Guest mjb]

Thanks, mjb. Realizing that the OP is about an IRA, do you know if the IRS has a similar pronouncement re RMD if the benefits are in a DC plan at the time of death?

See reg 1.401(a)(9)-2 Q/A-2(a) and -3 Q/A-1(a).

[J Simmons]

Thanks, jevd and again mjb.

For DC plans, Treas Reg § 1.401(a)(9)-5, Q&A-1(b) provides that the calendar year an employee reaches age 70 1/2 is a 'distribution calendar year' for which an RMD must be made even though RBD is not until April 1 of the next calendar year (and which RMD would be on the employee's life expectancy, for example 1/16th).

Treas Reg § 1.401(a)(9)-2, Q&A-2(a) provides that one's RBD (unless not a 5% owner and yet working) is April 1 following the end of the calendar year in which he or she reaches age 70 1/2.

Treas Reg § 1.401(a)(9)-3, Q&A-1(a) provides that if the employee dies before his/her RBD, then all the benefits must be paid out under the 5 year rule (unless over the beneficiary's life expectancy beginning the year following death, except that if the beneficiary is a surviving spouse of the employee, then over the surviving spouse's life expectancy when she/he reaches age 70 1/2).

I don't see these provisions as incompatible, but as capable of a congruous interpretation. Employee dies after reaching age 70 1/2 but before April 1 of the following calendar year. Treas Reg § 1.401(a)(9)-5, Q&A-1(b) calls for 1/16th RMD for the year of death since he had reached age 70 1/2, that can be paid as late as April 1 of the following calendar year. Treas Reg § 1.401(a)(9)-3, Q&A-1(a) calls for all the benefits to be paid out under the 5 year rule or its exceptions. The other 15/16th's on my example could all be paid out under the 5 year rule or its exceptions.

 

[jevd]

Thanks, mjb. Realizing that the OP is about an IRA, do you know if the IRS has a similar pronouncement re RMD if the benefits are in a DC plan at the time of death?

See reg 1.401(a)(9)-2 Q/A-2(a) and -3 Q/A-1(a).

Also: The 1.401(a)(9) regs are written for Qualified Plans. The following is from 1.408-8

Applying the 1.401(a)(9) Regs to IRAs unless otherwise stated.

The following questions and answers relate to the distribution rules for IRAs provided in sections 408(a)(6) and 408(b)(3).

10.1 Q-1. Is an IRA subject to the distribution rules provided in section 401(a)(9) for qualified plans?

A-1. (a) Yes, an IRA is subject to the required minimum distribution rules provided in section 401(a)(9). In order to satisfy section 401(a)(9) for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2003, the rules of §§1.401(a)(9)-1 through 1.401(a)(9)-9 and 1.401(a)(9)-6T for defined contribution plans must be applied, except as otherwise provided in this section. For example, whether the 5-year rule or the life expectancy rule applies to distributions after death occurring before the IRA owner's required beginning date is determined in accordance with §1.401(a)(9)-3 and the rules of §1.401(a)(9)-4 apply for purposes of determining an IRA owner's designated beneficiary. Similarly, the amount of the minimum distribution required for each calendar year from an individual account is determined in accordance with §1.401(a)(9)-5. For purposes of this section, the term IRA means an individual retirement account or annuity described in section 408(a) or (b). The IRA owner is the individual for whom an IRA is originally established by contributions for the benefit of that individual and that individual's beneficiaries.[191]

(b) For purposes of applying the required minimum distribution rules in §§1.401(a)(9)-1 through 1.401(a)(9)-9 and 1.401(a)(9)-6T for qualified plans, the IRA trustee, custodian, or issuer is treated as the plan administrator, and the IRA owner is substituted for the employee.[192]

© See A-14 and A-15 of §1.408A-6 for rules under section 401(a)(9) that apply to a Roth IRA.

[GMK]

And the answer is..? I may (and hope I don't) need to know this.

Are the 3 sentences that define 'first distribution calendar year' in post #8 mutually exclusive, i.e., if one is true, then the other two do not apply. Or can more than one apply?

[Guest Sieve]

John --

Treas. Reg. Section 1.401(a)(9)-3, Q&-1(a) does, I believe, stand for the proposition that someone dying before the required beginning date does not need to take the RMD. This is explained in Notice 2007-7, which discusses miscellaneous PPA '06 provisions (this Q&A being one of many explaining the non-spouse rollover rule):

"A–17. (a)

General rule

. If the employee dies before his or her required beginning date, the required minimum distributions for purposes of determining the amount eligible for rollover with respect to a nonspouse beneficiary are determined under either the 5-year rule described in § 401(a)(9)(B)(ii) or the life expectancy rule described in § 401(a)(9)(B)(iii). See Q&A–4 of § 1.401(a)(9)–3 to determine which rule applies to a particular designated beneficiary.

Under either rule, no amount is a required minimum distribution for the year in which the employee dies.

The rule in Q&A–7(b) of § 1.402©–2 (relating to distributions before an employee has attained age 70½) does not apply to nonspouse beneficiaries." (Emphasis added.)

(The highlighted portion above is not creating a new rule, but merely describing that particular rule as discussed in the 1.401(a)(9) regs.)

So, even though you have a first distribution year, you have no required distribution in that case. If distributions had begun, i.e. the required beginning date for the first distribution year had been reached and the first distribution had been made, then you would have a required distribution in the year of death if the individual dies before that year's required beginning date.

Also note that Treas. Reg. Section 1.401(a)(9)-3, Q&A-1(a) says that distribution following the pre-RBD death an MRD-eligible employee can be made under either the 5-year rule or the life expectancy rule, and that the 5-year rule "requires that the entire interest of the employee be distributed within 5 years of the employee's death . . ." It does not indicate that the "entire interest of the employee" is first reduced by the MRD for the first distribution year.

GMK - The first distribution calendar year is determined based on whether the individal is or is not a 5% owner. If the individual is a 5% owner, the 1st distribution calendar year is the year the individual turns 70-12, and the RBD is April 1 of the next calendar year. If the individual is not a 5% owner, the 1st distribution calendar year is the year in which the individual terminates employment or turns 70-1/2, whichever is later--so, the RBD is April 1 of the calendar year folllowing termination of employment if that individual terminates employment after reaching age 70-1/2 (say, at age 78). So, these required begining dates are mutually exclusive.

[J Simmons]

With all due respect, the problem inheres from the facts that the RMD from DC plan benefits is triggered for years in which the employee is 70 1/2 years or older (Treas Reg § 1.401(a)(9)-5, Q&A-1(b)) and the RBD is delayed to April 1 of the calendar year after the one in which the employee reaches age 70 1/2 (Treas Reg § 1.401(a)(9)-2, Q&A-2(a)).

So it is possible as the OP posits (albeit in the IRA rather than DC context) that an employee may live to trigger a first RMD and yet die before his RBD, the date that first RMD must be paid or face the 50% penalty. Regarding an employee that dies at any time before his RBD, Treas Reg § 1.401(a)(9)-3, Q&A-1(a) provides that all benefits must be paid within the 5 year rule (or life expectancy exceptions). This is so whether the employee dies at age 45, 62, or March 31 of the calendar year after that in which he reached age 70 1/2. Notice 2007-7, A-17, quoted by Sieve, is addressing the RMD's triggered by the employee's death, whether per the 5 year rule or the life expectancy exceptions. Neither of those as triggered by the employee's death requires an RMD for the year of the employee's death.

However, what -5, Q&A-1(b) provides is a different RMD trigger. Not the employee's death, but instead his having reached age 70 1/2 before dying. Treas Reg § 1.401(a)(9)-5, Q&A-1(b) specifies that the year that the employee reaches age 70 1/2 is a distribution calendar year, for which an RMD is required. This provision specifically deals with the calendar year the employee reaches age 70 1/2. Also note, -5, Q&A-1(b) does not indicate that the employee must live to at least April 1 of the next calendar year for the year of reaching age 70 1/2 to be a 'distribution calendar year'.

Canons of interpretation would suggest that the more specific (-5, Q&A-1(b)) is favored over apparently conflicting broader provisions (-3, Q&A-1(a)). That would favor there being an MRD being triggered by reason of the employee reaching age 70 1/2 before dying, per -5, Q&A-1(b). However, here, both may be accommodated in a single interpretation, see post #12 above, which is another interpretive preference. The two provisions are not logically inconsistent. The triggering of an RMD under -5, Q&A-1(b) because the employee reached age 70 1/2 before dying does not prevent his death beneficiary from also complying with the 5 year rule or life expectancy exceptions to that rule under -3, Q&A-1(a).

I understand the posts pertaining to IRA situations. There is the IRS statement from Publication 590 mentioned above in post #6. And the IRA regs provide that RMDs from IRAs are generally to mimic or piggyback off of the Treas Regs § 1.401(a)(9). I'm not sure that the clarity of a regulation about RMDs in the DC context (-5, Q&A-1(b)), i.e. that an RMD is triggered for the year the employee reaches age 70 1/2, may be ignored on the strength of a publication statement about RMDs from IRAs. The stakes being a penalty tax equal to 50% of a missed RMD amount, I'd want more basis for the DC context than the statement in a publication statement about RMDs from IRAs to ignore a regulation entitled, Required minimum distributions from defined contribution plans.

Maybe just my conservative nature, but before I'd hazard that 50% penalty tax I would want something a bit more authoritative.

[Guest mjb]

The distribution rules for qualified plan participants who die prior to the required beginning date (April 1 of the year after attaining 70 1/2) are the same as the rules for IRAs in Pub 590: distribution must commence by the end of the 5th year after death or by commencing a periodic payment over the life or life expectancy of the beneficiary beginning by Dec 31 of year after death. See Pub 575 P 31 rt col bottom (required beginning date) and P32 rt col. top (distribution requirements). Pub 575 does not require that an RMD must be taken by a participant in a qualified plan who attains age 70 1/2 but dies before the following April 1.

[J Simmons]

Nor does Pub 575 specify that the RMD for the reader's "starting year" (the calendar year in which age 70 1/2 is reached) doesn't have to be made if you die after reaching age 70 1/2 and before April 1 of the next calendar year.

[Guest Sieve]

John --

I don't disagree with your analysis. It certainly is acceptable, logical and consistent with the rules.

But I don't see anything in language of the regs (that has been cited here) that leads me to believe, in the instance of someone who dies before the RBD, that there is different treatment if the "triggering event" is the death of the individual before attaining age 70-1/2 rather than if the triggering event is the attainment of age 70-1/2 which then is followed by death before RBD. The cites discuss "death before RBD", both in the regs (1.401(a)(9)-3, Q&A-1(a)) and Notice 2007-7 (Q&A-17), not differentiating that event, as you point out, based on attainment of any age. In each case, death occurs before the RBD.

You indicate yourself that death before RBD includes death on March 31 of the year following the year of the 70-1/2 birthday. If so, the rule relating to death before RBD simply qualifies the normal distribution rule (i.e., distribution by the RBD after attaining age 70-1/2).

Also, let's look at the statute. IRC Section 401(a)(9)(B)(ii) covers all instances other than death after the commencement of distributions (IRC Section 401(a)(9)(B)(i)), and it says " . . . [a qualified plan must provide that] if an employee dies before the distribution of the employee's interest has begun [before the RBD], the entire interest of the employee will be distributed within 5 years after the death . . ." (Emphasis added.)

And, I don't think the normal RBD distribution after age 70-1/2 is the specific rule here. Rather, I think that the death rule is more specific, because you can die after reaching the age 70-1/2 RBD, but you can't reach the age 70-1/2 RBD after death. So, the instance in which both events occur (age 70-1/2 & death) is more specific than the one where only one occurs (attainment of age 70-1/2)--i.e., if 70-1/2 and living, rule A applies, but, if age 70-1/2 and then dead, rule B applies.

Also, just because 2 provisions can be interpreted consistently without one trumping the other, it doesn't mean that that always is the proper interpretation.

If there was doubt in my mind--although I haven't yet checked Natalie Choate's book--I, too, am conservative enough not to risk the 50% penalty for failure to distribute properly. I would not have a problem here, however.

[J Simmons]

Had Treas Reg § 1.401(a)(9)-5, Q&A-1(b) not been included as part of the regulatory set, I would wholeheartedly agree. I just don't think it's proper to apply Treas Reg § 1.401(a)(9)-3, Q&A-1(a) in isolation, and there is nothing of which I'm aware in the 401a9 regs that suggests that Treas Reg § 1.401(a)(9)-5, Q&A-1(b) is subordinate to and must yield to Treas Reg § 1.401(a)(9)-3, Q&A-1(a).

[Guest Sieve]

How about Reg. 1.401(a)(9)-2, Q&A-6(a)? It gives an example of someone who starts distributions before age 70-1/2. then dies before the RBD (April 1 of the year following the year reaching age 70-1/2). In that case, the reg clearly says that MRDs must be made under IRC Section 401(a)(9)(B)(ii), (iii) or (iv), and NOT under IRC Section 401(a)(9)(B)(i). That means that death prior to RBD (no matter the age) will trigger a distribution based on death, not one based on reaching age 70-1/2.

[GMK]

Sieve - Thank you for your response in post #15, regarding the first 2 definitions of 'first distribution calendar year' in post #8 (for age 70-1/2 and retirement). Unfortunately, I did not state my question clearly.

To be more clear, my question is: In cases where the emphasized sentence in post #8 applies, are we to disregard the other 2 definitions (for age 70-1/2 and retirement) or can they also apply?

Until this thread, I thought RMD was due FOR the year of death if the employee attained age 70-1/2 and died before the RBD (separate from any RMD for the beneficiaries). jevd makes a strong argument that in this case the RMD shifts from the employee to the beneficiary, which shifts the first distribution calendar year. Hmmm. Fortunately, the situation has not come up yet, but it could.

Anyone - The statement in Pub 590 (in post #6), no minimum distribution if IRA owner reaches 70-1/2 and dies before the RBD, is very informative for IRA's. Do the IRA regs specifically say this, or is it an interpretation of the regs (and maybe the answer to this thread)?

Thanks to all who are contributing to this discussion.

[Kevin C]

I think 1.401(a)(9)-5 Q&A 4 supports John's position. It says the rules for required minimum distributions during the participant's lifetime apply for distribution calendar years up to and including the year of death.

Q-4. For required minimum distributions during an employee's lifetime, what is the applicable distribution period?

A-4. (a) General rule. Except as provided in paragraph (b) of this A-4, the applicable distribution period for required minimum distributions for distribution calendar years up to and including the distribution calendar year that includes the employee's date of death is determined using the Uniform Lifetime Table in A-2 of §1.401(a)(9)-9 for the employee's age as of the employee's birthday in the relevant distribution calendar year. If an employee dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee's death is determined as if the employee had lived throughout that year. Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee's death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee.

(b) Spouse is sole beneficiary --(1) General rule. Except as otherwise provided in paragraph (b)(2) of this A-4, if the sole designated beneficiary of an employee is the employee's surviving spouse, for required minimum distributions during the employee's lifetime, the applicable distribution period is the longer of the distribution period determined in accordance with paragraph (a) of this A-4 or the joint life expectancy of the employee and spouse using the employee's and spouse's attained ages as of the employee's and the spouse's birthdays in the distribution calendar year. The spouse is sole designated beneficiary for purposes of determining the applicable distribution period for a distribution calendar year during the employee's lifetime only if the spouse is the sole beneficiary of the employee's entire interest at all times during the distribution calendar year.

(2) Change in marital status. If the employee and the employee's spouse are married on January 1 of a distribution calendar year, but do not remain married throughout that year (i.e., the employee or the employee's spouse die or they become divorced during that year), the employee will not fail to have a spouse as the employee's sole beneficiary for that year merely because they are not married throughout that year. If an employee's spouse predeceases the employee, the spouse will not fail to be the employee's sole beneficiary for the distribution calendar year that includes the date of the spouse's death solely because, for the period remaining in that year after the spouse's death, someone other than the spouse is named as beneficiary. However, the change in beneficiary due to the death or divorce of the spouse will be effective for purposes of determining the applicable distribution period under section 401(a)(9) in the distribution calendar year following the distribution calendar year that includes the date of the spouse's death or divorce.

[jevd]

I think 1.401(a)(9)-5 Q&A 4 supports John's position. It says the rules for required minimum distributions during the participant's lifetime apply for distribution calendar years up to and including the year of death.

Q-4. For required minimum distributions during an employee's lifetime, what is the applicable distribution period?

A-4. (a) General rule. Except as provided in paragraph (b) of this A-4, the applicable distribution period for required minimum distributions for distribution calendar years up to and including the distribution calendar year that includes the employee's date of death is determined using the Uniform Lifetime Table in A-2 of §1.401(a)(9)-9 for the employee's age as of the employee's birthday in the relevant distribution calendar year. If an employee dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee's death is determined as if the employee had lived throughout that year. Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee's death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee.

(b) Spouse is sole beneficiary --(1) General rule. Except as otherwise provided in paragraph (b)(2) of this A-4, if the sole designated beneficiary of an employee is the employee's surviving spouse, for required minimum distributions during the employee's lifetime, the applicable distribution period is the longer of the distribution period determined in accordance with paragraph (a) of this A-4 or the joint life expectancy of the employee and spouse using the employee's and spouse's attained ages as of the employee's and the spouse's birthdays in the distribution calendar year. The spouse is sole designated beneficiary for purposes of determining the applicable distribution period for a distribution calendar year during the employee's lifetime only if the spouse is the sole beneficiary of the employee's entire interest at all times during the distribution calendar year.

(2) Change in marital status. If the employee and the employee's spouse are married on January 1 of a distribution calendar year, but do not remain married throughout that year (i.e., the employee or the employee's spouse die or they become divorced during that year), the employee will not fail to have a spouse as the employee's sole beneficiary for that year merely because they are not married throughout that year. If an employee's spouse predeceases the employee, the spouse will not fail to be the employee's sole beneficiary for the distribution calendar year that includes the date of the spouse's death solely because, for the period remaining in that year after the spouse's death, someone other than the spouse is named as beneficiary. However, the change in beneficiary due to the death or divorce of the spouse will be effective for purposes of determining the applicable distribution period under section 401(a)(9) in the distribution calendar year following the distribution calendar year that includes the date of the spouse's death or divorce.

My only reply is that this is the "General Rule" and the regulations go on to explain requirements for distribution when death occurs before RBD. Thus the general rule would apply to all other situations except Death before RBD. ALso my response was addressing the OP and IRAs although it is my opinion that the same applies to qualified plans.

That being said, unless there is a compelling reason not to take the distribution for the year of death before RBD, then I would err on the conservative side and have the beneficiary take it and avoid any question of underdistributions. Opinion only. Consult with your paid professional or if it makes sense request a PLR.

[GMK]

For me, the compelling reason to answer this question one way or the other is to ensure that the plans operate in the best interests of the participants and their beneficiaries.

As I understand it:

If the plan requires the beneficiary to receive an RMD (for the year the 70-1/2 year old died pre-RBD) and if that RMD is in fact not required, then the plan has forced the beneficiary to pay taxes (on the RMD) unnecessarily, which reduces the net benefit to the beneficiary.

If an RMD is required for the year the 70-1/2 year old died pre-RBD and the plan tells the beneficiary that that RMD is not required, then the plan puts the beneficiary at risk for a hefty excise tax penalty.

Thanks, as always, for your comments.

[Guest Sieve]

jevd --

As you can see by my posts on this topic, I agree wholeheartedly with your conclusion that death before RBD does not require an MRD based on that RBD--even if the participant reached age 70-1/2 before death.

Your suggested conservative approach--paying out the 1st MRD by April 1 of the calendar year following the calendar year of attainment of age 70-1/2--may make some sense, except that it might also require a distribution of a very large amount (maybe in the hundreds of thousands of dollars) that, I believe, would be unnecessary.

In fact, if the death occurred during that portion of the calendar year prior to that April 1 (i.e., if death occurred in distribution calendar year #2), wouldn't it therefore require, in order to be consistent, that another MRD be made for distribution calendar year #2, and therefore 2 MRDs would be required in that one calendar year? That may be a lot of $$ unnecessarily distributed (assuming the beneficiary does not want the distribution).

Of course, many beneficiaries welcome the distribution--to the tune of gimme, gimme, gimme--and therefore render the determination moot.

[jevd]

jevd --

As you can see by my posts on this topic, I agree wholeheartedly with your conclusion that death before RBD does not require an MRD based on that RBD--even if the participant reached age 70-1/2 before death.

Your suggested conservative approach--paying out the 1st MRD by April 1 of the calendar year following the calendar year of attainment of age 70-1/2--may make some sense, except that it might also require a distribution of a very large amount (maybe in the hundreds of thousands of dollars) that, I believe, would be unnecessary.

In fact, if the death occurred during that portion of the calendar year prior to that April 1 (i.e., if death occurred in distribution calendar year #2), wouldn't it therefore require, in order to be consistent, that another MRD be made for distribution calendar year #2, and therefore 2 MRDs would be required in that one calendar year? That may be a lot of $$ unnecessarily distributed (assuming the beneficiary does not want the distribution).

Of course, many beneficiaries welcome the distribution--to the tune of gimme, gimme, gimme--and therefore render the determination moot.

Larry,

I agree. For those situations involving large numbers the individual should seek professional advice or possibly a PLR. In other situations where there is little tax impact, the conservative approach may cause less brain damage.

[GMK]

You can't always get what you want, but after re-reading this thread, I know how to get what I need.

[Guest Sieve]

GMK --

Don't know if anyone ever answered your post #22 re: different RBDs and whether more than 1 can apply. The answer is No--if the death RBD applies, then the age 70-1/2 or termination of employment RBD no longer applies.

[J Simmons]

GMK --

Don't know if anyone ever answered your post #22 re: different RBDs and whether more than 1 can apply. The answer is No--if the death RBD applies, then the age 70-1/2 or termination of employment RBD no longer applies.

Although stated declaratively, that Sieve's opinion. Mine is different. The situation of the OP meets the explicit requirements of both -3 and -5, nothing in the regulations provides that if -3 applies then -5 cannot. My position is that both apply to the OP situation. Ignore -5 at your own peril--or get a legal opinion (so you might have malpractice recourse if need be).

[GMK]

Wow. Sometimes you even get what you want (an answer to post #22). Thank you, Sieve and JSimmons.

Although no one appears to agree with JSimmons' conclusion (except maybe Kevin C), IMHO, his logic appears to be bullet-proof with regard to qualified plans. Of course, if I knew for certain, then I wouldn't have to ask the questions.

If a plan faces this situation, I would not decide based on my level of conservatism or the size of the distribution. I would get what I need by having the plan get an opinion in writing from the plan's attorney, as jevd suggested previously and as JSimmons just recommended.

[Guest mjb]

GMK --

Don't know if anyone ever answered your post #22 re: different RBDs and whether more than 1 can apply. The answer is No--if the death RBD applies, then the age 70-1/2 or termination of employment RBD no longer applies.

Although stated declaratively, that Sieve's opinion. Mine is different. The situation of the OP meets the explicit requirements of both -3 and -5, nothing in the regulations provides that if -3 applies then -5 cannot. My position is that both apply to the OP situation. Ignore -5 at your own peril--or get a legal opinion (so you might have malpractice recourse if need be).

IRS Pub 590 explicitly informs taxpayers that "If an IRA owner dies after reaching 70 1/2 but before April 1 of the next year no minimum distribution is required because death occurred before the required beginning date".

The above language is consistent with the MRD regs. which definitively state that no MRD is required if the IRA owner dies before April 1:

1.401(a)(9)-2 Q/A-2(a) "The term required beginning date means April 1 of the calendar year following the later of the calender year in which the employee attains age 70 1/2 or retires from employment" and -3 Q/A-1 states "if an employee dies before the employee's required beginning date (and thus before distributions are treated as having begun in accordance with Section 401(a)(9)(A)(ii)) (Ed- i.e., over the employee's lifetime) distribution will be made in accordance with one of the methods described in sections (B)(ii), (ii) or (iv), etc. (Ed-which relate to beneficiary distributions which did not commence by the MRD).

If an MRD is required for the year age 70 1/2 is attained why would the regulation explicity note that death occurs before the distributions are treated as having begun over the employee's lifetime?

Reg 1.408-8 Q/A-1 states that "...the rules of reg. 1.401(a)(9)-1 through 9 for defined contribution plans must be applied except as otherwise provided in this section."

The symmetry in the above regulations and IRC 401(a)(9) demonstrate the obvious: No MRD is required if death occurs before April 1 of the year after the IRA owner or participant attains 70 1/2.

Are you saying if a taxpayer relies on the above language in Pub 590 and the MRD regulations the IRS would impose a 50% excise tax for the failure to take a MRD for the year the IRA owner attained 70 1/2 but dies prior to April 1 of the following year?

[Guest mjb]

Wow. Sometimes you even get what you want (an answer to post #22). Thank you, Sieve and JSimmons.

Although no one appears to agree with JSimmons' conclusion (except maybe Kevin C), IMHO, his logic appears to be bullet-proof with regard to qualified plans. Of course, if I knew for certain, then I wouldn't have to ask the questions.

If a plan faces this situation, I would not decide based on my level of conservatism or the size of the distribution. I would get what I need by having the plan get an opinion in writing from the plan's attorney, as jevd suggested previously and as JSimmons just recommended.

Given the language in Reg 1.408-8 there is no basis in the MRD regs for differing between MRD required under an IRA and a qualiied plan.

[J Simmons]

As a result of this thread, I know a couple of sources I can send those who are death beneficiaries of a (former) employee that reached age 70 1/2 but then died before April 1 of the next calendar year for an unequivocal legal opinion on the topic.

[Guest mjb]

As a result of this thread, I know a couple of sources I can send those who are death beneficiaries of a (former) employee that reached age 70 1/2 but then died before April 1 of the next calendar year for an unequivocal legal opinion on the topic.

You haven't answered my question:

Given the statements in IRS publications and the MRD regulations 1.401(a)(9)-2 and 3 and reg 1.408-8, would the IRS impose the 50% excise tax if an MRD is not taken where a participant who attains age 70 1/2 dies before April 1 of the following year?

[J Simmons]

As a result of this thread, I know a couple of sources I can send those who are death beneficiaries of a (former) employee that reached age 70 1/2 but then died before April 1 of the next calendar year for an unequivocal legal opinion on the topic.

You haven't answered my question:

Given the statements in IRS publications and the MRD regulations 1.401(a)(9)-2 and 3 and reg 1.408-8, would the IRS impose the 50% excise tax if an MRD is not taken where a participant who attains age 70 1/2 dies before April 1 of the following year?

Are you opining the IRS wouldn't in the DC context?

[Guest mjb]

As a result of this thread, I know a couple of sources I can send those who are death beneficiaries of a (former) employee that reached age 70 1/2 but then died before April 1 of the next calendar year for an unequivocal legal opinion on the topic.

You haven't answered my question:

Given the statements in IRS publications and the MRD regulations 1.401(a)(9)-2 and 3 and reg 1.408-8, would the IRS impose the 50% excise tax if an MRD is not taken where a participant who attains age 70 1/2 dies before April 1 of the following year?

Are you opining the IRS wouldn't in the DC context?

Have you been reading my posts?

Here is my statement From #32:

"The symmetry in the above regulations and IRC 401(a)(9) demonstrate the obvious: No MRD is required if death occurs before April 1 of the year after the year the IRA owner or participant attains age 70 1/2."

From # 33

Given the language in Reg 1.408-8 there is no basis in the MRD regs for differing between an MRD required under an IRA and a qualified plan.

What part of no dont you understand?

Are you ever going to answer my question?

[J Simmons]

Have you been reading my posts?

Yes, I've read them. And while I respect your inductive reasoning--if the IRS says in a publication (not regulation, proposed regulation, Rev Rul, Rev Proc, GCM, etc) about IRAs that no MRD is required for the calendar year of 70 1/2 if the IRA owner dies after reaching that age but before his RBD on April 1 of the next calendar year, then that's an interpretation that also you also apply to the DC context--I would not base any legal opinion letter issued under my signature on that basis. I'd certainly argue it to the IRS if a client came to me not having taken the MRD for the calendar year the DC plan employee reached age 70 1/2 but then died before his RBD. I'd certainly argue it in a request for PLR or in tax court.

But for the death beneficiary seeking my opinion as to whether the RMD for the calendar year of 70 1/2 should be taken by April 1 of the next year despite the employee's death, I would make sure to advise that there is nothing directly on point from the IRS--as well as your inductive reasoning argument. I would also point out that the IRS could claim on the basis of -5 that the MRD for the year of age 70 1/2 is required, and they'd be seeking a 50% penalty tax. I'd want my client to understand both interpretations, the arguments favoring and disfavoring each, and what the consequence of foregoing the MRD might be (to weigh against the loss of further tax-deferral on what the MRD payout amount would be), so that my client could make an informed decision as to what course of action to take.

What part of no dont you understand?

Is that a trick question? Before I answer, I'd like to know what parts of no are there?

Are you ever going to answer my question?

I think I just did in this post. Will you be answering mine, i.e. Are you opining the IRS wouldn't [assess the 50% penalty] in the DC context? If so and you'd be willing to give death beneficiaries and estates an unequivocal written legal opinion to that effect, I'll know where to send those not satisfied with my drawing out the pros and cons of the two viable interpretations.

[Guest mjb]

Have you been reading my posts?

Yes, I've read them. And while I respect your inductive reasoning--if the IRS says in a publication (not regulation, proposed regulation, Rev Rul, Rev Proc, GCM, etc) about IRAs that no MRD is required for the calendar year of 70 1/2 if the IRA owner dies after reaching that age but before his RBD on April 1 of the next calendar year, then that's an interpretation that also you also apply to the DC context--I would not base any legal opinion letter issued under my signature on that basis. I'd certainly argue it to the IRS if a client came to me not having taken the MRD for the calendar year the DC plan employee reached age 70 1/2 but then died before his RBD. I'd certainly argue it in a request for PLR or in tax court.

But for the death beneficiary seeking my opinion as to whether the RMD for the calendar year of 70 1/2 should be taken by April 1 of the next year despite the employee's death, I would make sure to advise that there is nothing directly on point from the IRS--as well as your inductive reasoning argument. I would also point out that the IRS could claim on the basis of -5 that the MRD for the year of age 70 1/2 is required, and they'd be seeking a 50% penalty tax. I'd want my client to understand both interpretations, the arguments favoring and disfavoring each, and what the consequence of foregoing the MRD might be (to weigh against the loss of further tax-deferral on what the MRD payout amount would be), so that my client could make an informed decision as to what course of action to take.

What part of no dont you understand?

Is that a trick question? Before I answer, I'd like to know what parts of no are there?

Are you ever going to answer my question?

I think I just did in this post. Will you be answering mine, i.e. Are you opining the IRS wouldn't [assess the 50% penalty] in the DC context? If so and you'd be willing to give death beneficiaries and estates an unequivocal written legal opinion to that effect, I'll know where to send those not satisfied with my drawing out the pros and cons of the two viable interpretations.

Your analysis of the application of the -5 reg to require an MRD for the year age 70 1/2 is attained if death occur prior to the following April 1 is flawed because -5 Q/A-1(a) states that "the minimum distribution required to be distributed for a distribution calendar year on or before the employee's required beginning date is always determined under 401(a)(9)(A)(ii) "- which is the employee's life expectancy- while -3 Q/A-1(a) expressly provides for distribution to a beneficiary of a participant or IRA owner who has attained age 70 1/2 "if an employee dies before the Required Beginning Date (and thus, before distributions are treated as having begun in accordance with section 401(a)(9)(a)(ii))". -2 Q/A-1(a) defines the RBD as the April 1 following attainment of age 70 1/2. In other words, -5 Q/A-1(a) requires distribution over a IRA owner or participant's life expectancy under IRC 401(a)(9)(A)(ii) for the year such person attains age 70 1/2 which is not possible for distributions under -3 Q/A-1(a) where by definition the IRA owner/participant dies before payments are treated as having begun to be paid over the employee's life expectancy in accordance with IRC 401(a)(9)(A(ii).

[GMK]

While looking at 1.408-8, especially Q&A-5, and related references, I came across this:

http://www.naepc.org/newstech-0701.web

which shows two (probably rare) cases where the regs do not define what the IRS will actually rule in PLR's.

I have very much appreciated the discussion in this thread, but in the end what matters is whether the IRS answers 'yes' or 'no' to mjb's question.

I understand that PLR's do not apply to us all in general, but are there any PLR's (or other pronouncements) in which the IRS has decided to impose or not impose the excise tax in the case of a qualified plan?

[Kevin C]

Here is my statement From #32:

"The symmetry in the above regulations and IRC 401(a)(9) demonstrate the obvious: No MRD is required if death occurs before April 1 of the year after the year the IRA owner or participant attains age 70 1/2."

MJB,

Your statement leads me to a question. A still employed 5+% owner turns age 70.5 in 2008. The 401(k) plan does not allow in-service distributions, except for required minimum distributions. He takes his 2008 RMD on 12/30/2008 and his 2009 RMD on 1/15/2009, then dies on 3/15/2009. Your statement is that his death means there are no RMD's for 2008 or 2009. So, he was not eligible for either distribution. What should the plan do about the retroactive operational failure caused by his death?

[Guest Sieve]

Since it is impossible to determine until April 1 of the year following the year of this owner's attainment of age 70-1/2 whether death will occur prior to the RBD, thus negating the need to make the MRD, I would suggest that the earlier MRDs do not produce an operational failure since, when those distributions were made, the plan was fully complying with its terms. The only way to guarantee that there is no "failure" would be to withhold payments until that April 1--not a very practical approach.

Besides--I think these are MRDs when they are distributed prior to RBD. It's just that, for purposes of making MRDs on account of death, these MRDs would not have been required to be made if distributions had not already occurred. The regs don't say you can't make these distributions--only that, if not made before death, they need not be made after death to the beneficiary.

[GMK]

From 1:408-8:

"Q-5. May an individual's surviving spouse elect to treat such spouse's entire interest as a beneficiary in an individual's IRA upon the death of the individual (or the remaining part of such interest if distribution to the spouse has commenced) as the spouse's own account?

"A-5. (a) The surviving spouse of an individual may elect...to treat the spouse's entire interest...as the spouse's own IRA. ... If the surviving spouse makes the election, the required minimum distribution for the calendar year of the

election and each subsequent calendar year is determined under section 401(a)(9)(A) with the spouse as IRA owner and not section 401(a)(9)(B) with the surviving spouse as the deceased IRA owner's beneficiary. However, if the election is made in the calendar year containing the IRA owner's death, the spouse is not required to take a required minimum distribution as the IRA owner for that calendar year. Instead, the spouse is required to take a required minimum distribution for that year, determined with respect to the deceased IRA owner under the rules of A-4(a) of §1.401(a)(9)-5, to the extent such a distribution was not made to the IRA owner before death."

The question Q-5 explicitly applies both before distributions begin (entire interest) and after distributions have commenced.

The last 2 sentences of the A-5. (a) answer (starting at "However, if ...") seem to say that if the surviving spouse makes the election in the same year that the IRA owner died, the spouse is required to take an RMD for that year of the owner's death, determined with respect to the deceased IRA owner, less previous applicable distributions to the owner before death.

How is this reconciled with the Publ. 590 statement about no RMD required? (I must be missing something, which would be no surprise.)

Does this also apply to qualified plans?

Sorry if I seem like a pest. I don't mean to be. Just trying to learn something.

[Guest Sieve]

This reg stands for the proposition that, if the spouse must take an MRD for the deceased IRA owner in the year in which the spouse elected to rollover into the spouse's IRA, then the spouse takes as beneficiary rather than as owner of the IRA. But it only applies IF the spouse must take an MRD for the IRA owner--and, we all know ( ) that the spouse need NOT take an MRD for the owner if the owner dies prior to the owner's RBD.

The reg you cite--and, specifically, the sentences you point to--cross reference reg. -5, Q&A-4(a), which deals with the requirement to take a distribution with respect to the year of death IF THE DECEASED ALREADY HAS REACHED RBD AND HAD ALREADY COMMENCED DISTRIBUTIONS, and is used to determine the distribution period for calculating the payout during the distribution calendar year.

For example, "f an employee dies on or after the required beginning date, the distribution period . . . is determined as if the employee had lived throughout that year." (Reg. -5, Q&A-4(a).) In other words, IRA owner starts receving benefits, dies after the RBD at age 73, but would have turned 74 before the year ended--then the MRD for that year must be paid, and is based on IRA owner's age 74 (even though IRA owner died before reaching age 74). And,the reg you cite indicates that that MRD is paid to the spouse AS A BENEFICIARY of the IRA.

It does not change the general rule that if an employee or IRA owner dies BEFORE RBD--and remember, there is only one RBD--no MRD is required to be paid.

(And, no, the reg you cite does not apply to qualified plans since you cannot take as the owner of a qualified plan if you are the beneficiary--whereas you can take as the owner of an IRA if you, as spouse, rollover the IRA and treat it as your own. You always take from a qualified plan as the beneficiary, while there might be an issue as to whether you take from an IRA as beneficiary or owner (which the reg you quote deals with).)

In my opinion, of course.

[Kevin C]

Since it is impossible to determine until April 1 of the year following the year of this owner's attainment of age 70-1/2 whether death will occur prior to the RBD, thus negating the need to make the MRD...

That was my point. The majority interpretation creates a situation where it is impossible to follow a fairly common set of plan provisions. Either the IRS messed up, or there is something wrong with the majority interpretation.

I don't think your solution of considering them required if paid before death works either. RMD's relate to a "distribution calendar year". Unless I am missing something, part of the majority interpretation is that the first distributon calendar year in this situation is determined either under the life expectancy rule or the 5 year rule. That would make the first distribution calendar year no earlier than the calendar year following the year of death. That means the distributions while alive can't be RMD's because they occur in a year prior to the first distribution calendar year.

As interesting as a discussion of the regulations can be, the only opinion that really matters is the IRS's. Since there doesn't seem to be any official guidance clearly addressing this situation, does anyone know if this has been discussed in an IRS Q&A session? If not, maybe someone could get this on the list?

[Guest Sieve]

Kevin --

Let's look at a Natalie Choate example in her book (this is from Section 1.3.07 of the 2003 edition--prior to current edition (my copy of the current edition is elsewhere)--but the regs were finalized before 2003, and nothing has changed to make the example inapplicable now).

Basically, an employee (Otto) retires in 1998 and turns 70-1/2 in 2001. By the end of 2001 he has not taken MRD #1 (for 2001), but he doesn't have to take that MRD until April 1, 2002 (this is his RBD for reaching age 70-1/2 in 2001). Of course, he also will have to take MRD #2 (for 2002) by the end of 2002--2 MRDs expected for 2002. Unfortunately for Otto--but fortunately for this discussion--he dies on March 31, 2002, prior to his RBD. Says Choate: "He has died before his RBD. The requirement for taking MRDs for 2001 and 2002 is simply erased, because he never reached his RBD." (Emphasis in original.)

Choate is not gospel. But some think she is close to gospel. I provide this for edification and for your consideration.

And, I think the apparent conflict between this state of affairs and a plan potentially making inappropriate and operationally deficient distributions to Otto before his death would not, on a practical level, be an issue. Do you think authorizing and making a 401(k) hardship withdrawal for surgical expenses and then having the employee suffer complications so that the surgery never takes place is an operational failure in a 401(k) plan? I think not. (Perhaps a bad example--as examples tend to be. But I think you get my drift--although it may only be my drift.)

But, asking the IRS is good, too . . .!!

[GMK]

Sieve - thanks for connecting some of the dots for me. I understand your reasoning.

Sadly (to me), this is another case where the RMD rules for IRA's and qualified plans lack symmetry.

But tomorrow's another month, and I can keep hoping that I don't really have to know the what the IRS would say.

[Guest mjb]

Here is my statement From #32:

"The symmetry in the above regulations and IRC 401(a)(9) demonstrate the obvious: No MRD is required if death occurs before April 1 of the year after the year the IRA owner or participant attains age 70 1/2."

MJB,

Your statement leads me to a question. A still employed 5+% owner turns age 70.5 in 2008. The 401(k) plan does not allow in-service distributions, except for required minimum distributions. He takes his 2008 RMD on 12/30/2008 and his 2009 RMD on 1/15/2009, then dies on 3/15/2009. Your statement is that his death means there are no RMD's for 2008 or 2009. So, he was not eligible for either distribution. What should the plan do about the retroactive operational failure caused by his death?

see reg. 1.401(a)(9)-2 Q/A-6 (a) :" Consequently if A dies before April 1, 2009 (A's required beginning date), distributions after A's death must be made in accordance with section 401(a)(9)(ii), (iii) or (iv) and reg.1.401(a)(9)-3 and not section 401(a)(9)(i). This is the case without regard to whether the plan has distributed the minimum distribution for the first distribution calendar year (as defined in A-1(b)) before A's death."

[Guest mjb]

Kevin --

Let's look at a Natalie Choate example in her book (this is from Section 1.3.07 of the 2003 edition--prior to current edition (my copy of the current edition is elsewhere)--but the regs were finalized before 2003, and nothing has changed to make the example inapplicable now).

Basically, an employee (Otto) retires in 1998 and turns 70-1/2 in 2001. By the end of 2001 he has not taken MRD #1 (for 2001), but he doesn't have to take that MRD until April 1, 2002 (this is his RBD for reaching age 70-1/2 in 2001). Of course, he also will have to take MRD #2 (for 2002) by the end of 2002--2 MRDs expected for 2002. Unfortunately for Otto--but fortunately for this discussion--he dies on March 31, 2002, prior to his RBD. Says Choate: "He has died before his RBD. The requirement for taking MRDs for 2001 and 2002 is simply erased, because he never reached his RBD." (Emphasis in original.)

Choate is not gospel. But some think she is close to gospel. I provide this for edification and for your consideration.

And, I think the apparent conflict between this state of affairs and a plan potentially making inappropriate and operationally deficient distributions to Otto before his death would not, on a practical level, be an issue. Do you think authorizing and making a 401(k) hardship withdrawal for surgical expenses and then having the employee suffer complications so that the surgery never takes place is an operational failure in a 401(k) plan? I think not. (Perhaps a bad example--as examples tend to be. But I think you get my drift--although it may only be my drift.)

But, asking the IRS is good, too . . .!!

Choate's above example (now in section 1.4.08 of the 2008 edition) is a literal adaption of an example in Reg. 1.401(a)(9)-2-Q/A-6(a) which is cited as authority. So she is citing the gospel according to the IRS.

[GMK]

Kevin C - I agree with Sieve (post #42) that the plan's operations are acceptable, because at the time it made the RMD's, the RMD's were required. There is no way (that I know of) for the plan to foresee that a participant will die, so the event of the death should not retroactively count against the plan's otherwise proper actions. Of course, someone may know of a case where it has.

mjb - Thank you very much for your comments in this thread. My concern remains with what the IRS would actually do. In the reference linked in post #40, Ms. Choate points out that the IRS issues PLR's that quote the IRS's gospel on beneficiary distributions and then rule exactly the opposite of the gospel they cite.

To rephrase your question in post #32,

Does anyone know of any recorded cases where the IRS has ruled to impose or not to impose a 50% excise tax for the failure to take an RMD for the year a participant in a qualified plan attained age 70 1/2 (or if the participant was still an employee at age 70 1/2, for the year the qualified plan participant retired) but died prior to her/his RBD?