RMD

[RLR]

Participant dies in 2013. He has been taking RMDs but did not take the 2013 before his death. Spouse receives his 2013 RMD. Plan admin said if deceased participant's acct bal comprised of employer securities was distributed to the spouse as beneficiary in 2013 the taxes on the net appreciation on the employer securities could be avoided. Is this true? The distribution had to be a lump sum that was paid in one calendar year. Does her receipt of her spouse's RMD count as part of her lump sum distribution or is it a separate issue and she can take her lump sum distribution as beneficiary in 2014 and be eligible for the net appreciation exclusion? Obviously time is critical, so any guidance will be greatly appreciated.

[ETA Consulting LLC]

This is a good question. We know that the Lump Sum (for NUA) purposes is:

1) a payment within one taxable year of the employee's entire vested accrued benefit;

2) on account of death, age 59 1/2, severance from employment, or disability.

We also know that for these purposes, all like-kind plans of the employer are treated as one plan.

Your question centers on a determination as to whether the additional "life-time" RMD being paid to the participant's surviving spouse in the year of death (2013) is a payment on the account of death. I would argue that it is not. It is a payment that was already being made, but is now merely being distributed to a different person. The subsquent payments (above and beyond the required amount) would be amounts distributed on the account of death.

This interpretation may be a little aggressive. But, in order to qualify as a lump sum, the payment must be made on the account of one of the aformentioned reasons. The RMD in this case was already set to be made (on account of age 70 1/2). The only question was who was going to receive it. Now, any additional amounts would be made to the spouse on the account of death. Once you look at it, the interpretation really doesn't appear to be that aggressive.

I'm not sure if there are any Regulations that has ever addressed this particular scenario.

Good Luck.

[masteff]

I'm curious as the "bal comprised of employer securities" suggests they think she could do a distribution of less than the entire account.

Do you happen to know the source of the money invested in the employer securities? If they were only bought with employee contributions, then it doesn't have to be a lump sum. See reg 1.402(a)-1(b) and 1099-R Box 6.

[ETA Consulting LLC]

Remember that elective deferrals are "employer contributions" that are made at the election of the employee.

Good Luck!

[RLR]

Thank you for your replies - this has been helpful.