RMD after death

[Lou S.]

Participant in profit sharing plan over age 70.5 in pay status died in 2016.

2016 RMD was made to participants Trust.

In 2017 the balance of the account will be rolled to an IRA that will be divided by 5 beneficiaries.

The 2017 RMD must be made prior to the rollover to the conduit IRA and will be made to the trust prior to the rollover. Assume for this that attorney handling trust and rollover IRA has done it properly.

I get confused on what the RMD divisor for 2017 RMD is in this situation. Is it "the participants single life divisor in 2016 minus 1", or "the single life expectancy of the oldest of the 5 beneficiaries in 2017" if that results in a smaller RMD?

Or is there a different rule I'm missing?

Any guidance appreciated.

 

 

[ESOP Guy]

So a trust is being paid?  If so, I believe it is the participants single life divisor in 2016 minus 1. That is the rule for a non-person being paid. 

 

I believe you use the oldest beneficiary's age only when the beneficiaries are going to be paid directly (including them doing a rollover) AND the account has not been split by the 12/31 the year following death. It is important in this case the first payment isn't to a non-person like the trust. 

[Mike Preston]

Isn't it 9/30 following the end of the year following death?

[ESOP Guy]

I thought the 9/30 deadline is when certain decisions had to be made by not the split. 

[Lou S.]

Thanks both of you. Yes I think the 9/30 comes into play for various scenarios but not specifically for this one as the whole thing will be wrapped up before 9/30 of the year following death, at least from the Plan standpoint, after that I don't really care what  they do with the IRAs.

The trust meets the applicable rules for pass through trust under 401(a)(9) so I thought we'd get the benefit of oldest beneficiary if better in calculating the RMD for 2017 but based on ESOPs post maybe not. Looks like I'll have to re-read the regs again.

Essentially the RMD is being paid to the trust then distributed from the trust to the 5 beneficiaries and the balance of the account will be rolled to a conduit trust IRA that will then be divided by the 5 beneficiaries. 

I didn't set up this structure, just trying to follow the executors instructions while keeping the Plan in compliance with the RMD rules which always seem needlessly complex whenever I have to delve into them.

 

[ESOP Guy]

If you decide I have it wrong because of the nature of the trust let me know.  I dislike trusts for payments as they make things too complex.

And I for one agree RMD rules are too complex.  For one thing it is taking a sledge hammer to kill a gnat.  I get the government didn't' want large balances to be taxed at some point but they have made a set of rules that effect all balance sizes that are some of the easiest to get wrong. 

[Lou S.]

After re-reading (several times) Tres Reg. §1.4019(a)(9)-4 Q&As 3, 5 and 6 I think they can use the age of the eldest beneficiary to determine the RMD for 2017. I wouldn't stake my life on I but I'm reasonably confident enough to say that it is allowed and can be used for the calculation.

I'm also confident that they can not use multiple ages in sub-trusts to further reduce the RMD.

 

[Bird]

I agree with using the age of the oldest bene.