RMD and Multiple Bene's question

[Question?]

Assume:

1. There are multiple non-spousal beneficiaries entitled to a portion of a qualified 401(k) account.
2. The qualified account is still whole and has not been segregated into individual accounts for each beneficiary.
3. Each of the beneficiaries will be either rolling over to an Inherited IRA or taking a cash distribution of their portion.
4. A RMD is required of the account for the year in which the beneficiaries will be requesting a distribution.

Does the RMD amount have to split between each of the beneficiaries equally?

--Or--

If one of the beneficiaries takes a cash distribution of their portion of the account (and that amount satisfies the entire RMD due) do the other beneficiaries still have to receive a portion of the RMD as a cash distribution regardless or is the RMD considered exhausted by the one beneficiary electing a cash distribution?

[My 2 cents]

Not really familiar with the rules governing this sort of thing, but I would expect that they would require the RMD be allocated proportional to the distributions. Is this not so? I would not expect that the RMD would be affected by the methods chosen to make the distributions.

If the split of the account is equal, I would expect the RMD to be split equally.

[GMK]

Situation 3 in this article:

http://www.morningstar.com/advisor/t/68264867/rmd-conundrums.htm

suggests that in the case of taking the participant's RMD for the year in which the participant died, it might be OK to count a cash distribution to one of the beneficiaries as the RMD, but also notes that some feel that each beneficiary should take their share of the RMD total, even for the year-of-death RMD.

My sense from the article is that this is probably not OK in the years after the year of the participant's death and that for those subsequent RMD's to beneficiaries, each beneficiary has to take their own share of the RMD.

If it's one account, they use the shortest life expectancy of the beneficiaries to determine the total beneficiary RMD amount. If they split into separate accounts by December 31 of the year after the death, then they can each use their own life expectancies.

[Bird]

IMO, it doesn't matter who gets the RMD while the account is in the dededant's name. So if it's the year of distribution from the plan, you determine the RMD from the account first. Then, or simultaneously, you determine how each of the benes is taking their share. If one or more takes enough cash, then the RMD is satisfied. Of course the one(s) who roll over to inherited IRAs will have their own separate RMDs in future years.

As I see it, the gov't doesn't care who gets the cash/taxable distribution, as long as it is distributed. I do not have a cite...

(I suppose the plan might have a policy that everyone has to get a share of the RMD, just to simplify its operation.)

[My 2 cents]

How would it be handled if everyone wants to roll their piece over? If everyone wants to let it sit undistributed?

Clearly, if everyone takes cash, no problem.

[mbozek]

There is no rule for determining who must take the RMD in year of death. IRS only requires that RMD must be taken. It can be shared or taken by one beneficiary. there is no way IRS knows if beneficiaries take the MRD required for the year of death. If beneficiaries take MRD for year of death it will be reported under their SS # not the deceased's owner.

[Question?]

Thanks for the insight much appreciated! The specific situation I am dealing with the RMD was exhausted in 2014 prior to the account owner passing in Dec. 2014. So in this situation the beneficiary distributions will be occurring in the year following the year of death of the original account owner. As such the 2015 RMD will be based off the oldest bene's LEF. Does that change any thoughts in regards to if one bene could still exhaust the RMD for the whole group since the distributions are not occurring in the year of death?

[GMK]

As I said, I think the linked article suggests that beneficiaries will each have to take their share of the RMD in the years after the year of death, which is when the participant RMD rules end, and the beneficiary RMD rules take over.

Don't know if it matters, but one could imagine a case where a high tax bracket beneficiary rolls the benefit over, and the low tax bracket beneficiary takes the cash. If the low bracket person can claim the entire RMD, the IRS would not get as much tax revenue out of the distributions as they would have if both beneficiaries had to take RMD's. Just a thought.

[mbozek]

The only beneficiary who can rollover an interest in a decedent's IRA is the spouse which is permissible for the spouse's interest if spouse does not want to take distributions. Non spouse beneficiary must take MRD of bene's interest beginning with year after IRA owner's death.

High bracket beneficary can always disclaim interest in an IRA so that it could be transferred to the next contingent beneficiary who would pay less tax on MRDs if they are in a lower tax bracket but that is specifically permitted under gift tax law.

[4k Everyday]

I would like to follow-up on this thread.

I am looking for support in segregating the deceased participants account for multiple beneficiaries into individual accounts and then paying them out when each person individually remits their paperwork back. I was thinking they would be treated similar to an alternate payee where it is split then they can take a distribution options. Of course being sure RMD issues are properly addressed and payouts are happening in accordance with those regs.

I know in the original post it said that the accounts were whole and had not been segregated yet, so I was wondering if segregation was a common practice - or if others are waiting to receive distribution paperwork back from all beneficiaries prior to proceeding with a payout.