RMD Due - Balance is death benefit rollover

[jmartin]

Husband

DOB - 11/28/1941

Terminated in 2007

Turned 70 1/2 in 2012

Spouse

DOB - 6/9/1950

Died 2/3/07

Would have turned 70 1/2 in 2020

Question regarding a participant for a plan we recently took over. The spouse died with a balance. The husband, as the beneficiary, rolled her balance in this his account. His entire balance is the death benefit rollover. Should the husband be taking RMD's at this time? Or, does he start taking RMD's in 2020 when his spouse would have turned 70 1/2? Based on what I could find: there are three options:

1. The entire death benefit amount must be distributed by December 31 of the calendar year

containing the fifth anniversary of the owner’s death;

2. The death benefit must begin to be paid out over the spouse’s life expectancy beginning by

December 31 of the year following the owner’s death; or

3. The death benefit must begin to be paid out over the spouse’s life expectancy beginning by

December 31 of the year in which the owner would have reached age 70 ½.

It would appear that option three says that the husband, despite be 70 1/2 does not have to take until 2020.

[masteff]

The husband, as the beneficiary, rolled her balance in this his account. His entire balance is the death benefit rollover.

Was it an already existing and in use account? Did the account at the time of rollover have any other money in it?

How was the account designated at the time of rollover? Does anything indicate that it's a beneficiary account?

The first sentence I quoted makes me think he was electing to treat the account as his own, but it might just be an inaccurate choice of words on your part.

Assuming it's a beneficiary account, the answer is: #3 but you want to recalculate each year and depending on the result switch from being a beneficiary to electing to treat it as his own.

A real example: My father died in the year he would have been 72 and my step-mother was 80. We established account as a beneficiary account for my step-mother. The smallest MRD currently is using the factor based on my father. In the year my step-mother will turn 91, the factor using her age will result in the smaller MRD so we will elect to treat the account as hers at that time.

[jmartin]

We don'' have a ton of info on it. All the husband wrote to us said was that it was an inheritance from his spouse. All the company said was that he "assumed her balance as the spouse". That could just be how they chose to answer the questions. When I spoke with the participant he seemed quite affirmative that this was his wife's account and was told multiple times by the prior provider he wouldn't have to take RMD's. I tried emailing the other provider for more questions. Previously all they would give me was the balance. It was the participant and the company that let me know of the spouse death benefit...

When we took over the plan each participant had to choose the funds for it to be invested in. Fund mapping was not an option. The husband did complete an election form to invest this spousal balance. We do not know what he was invested in from the prior company. Does his choosing investment funds change anything? I believe the participant still considers the balances to be his spouse.

[masteff]

Ability to direct investments has no impact on the analysis.

In your original post you indicate the husband terminated employment in 2007. Is that correct? Did he work for the company? If so, it raises the question in my mind of whether he had an account of his own in the plan. I think the question you need the company to answer is: did the husband have an account in the plan prior to the spouse's death and was the spouse's benefit rolled into that same account or is this an entirely separate account of just the death benefit?

My opinion is that if they comingled the money (his and hers) in an account he already had, then he truly did what you stated... he rolled his spouse's account into his own, in which case the MRD should be calculated on his age. But, if this really is a separate account, I'd accept their indication that this is a beneficiary account, in which case your #3 is correct (IRS Reg 1.401(a)(9)-3 Q&A-3(b)).

I should add that the latter half of my answer about switching to using his own age at some future point would require that the beneficiary account be rolled over into a non-beneficiary account (presumably to an IRA if he doesn't have an account of his own in the plan).

[jmartin]

The husband was listed with a hire date and term date. I verified with the company that the hire date was actually for his spouse and the term date was the date his spouse passed away. The husband never worked for the company. In addition, the company said that the investment company, situations like this, automatically transfers the account to the beneficiary. To the best of the company's knowledge the investments were the same (mapped). The company did confirm that the "transfer or assumption from spouse to husband" was automatic and the husband didn't have any say in the creation or transition of balance from spouse to himself. That should clear up that piece. Thanks for your heolp.