MRD's for IRA's: Seperate Plans or Seperate Accounts?

[Guest reg_h2b]

I apologize for the length of this message. I would appreciate critical comments on the analysis herein.

With respect to MRD's, I am trying to see if there is a distinction between "seperate plans" and "seperate accounts" and what defines a "seperate plan" with respect to IRA's. Are multiple IRA's under different custodians ever "seperate plans"?

Let's assume:

Individual A has IRA's 1,2,3 each held seperately with three different custodians. Individual A has spouse B and children C and D. Individual A is the eldest with ages in the following order: A>B>C>D. Individual A dies before his RBD.

Whose expected lifetime would be used for MRD's under the following scenarios?

Scenario I:

Each of the IRA's (1,2,3) has B,C,D as the multiple primary beneficary of each of the IRA's? (e.g. IRA 1 has B,C,D as the primary ben.,etc.)

Analysis I:

Assuming that seperate accounting under Q&A H-2(B) was not done, Q&A E-5(a) of the proposed reg's tells us that at DOD if there are multiple ben's with respect to an employee the designated beneficary with the shortest exp. lifetime should be used (Spouse b).

Scenario II:

Each of the IRA's has only one of the ben.'s as the primary (e.g. IRA 1 has B, IRA 2 has C, etc.)

Partial Analysis II:

Is each IRA considered to be a different "plan" since it was held and created under a different custodial agreement? If so, then seperate accounting under Q&A H-2(a) would not seem to be relevant because that refers to "a plan" divided into seperate accounts. Or are IRA's, whether held with seperate custodians or not, always aggregated to be one "plan" with respect to 401(a)(9). And thus because they were always held (pre and post death) with seperate custodians "seperate accounting" is applicable.

Q&A H-1 says that if an employee has more than one plan then "the distribution of the benefit of the employee under each plan must seperately meet the requirements of section 401(a)(9)." However, for IRA's you may need to aggregate (see 408-2(B)(6)(vii)for aggregation required during owners lifetime). In other words do we have mutiple beneficaries under Scenario II or is each ben. a ben. under a seperate plan for the beneficary MRD's.

Does all this mean that each of the ben's in Scenario II can use each of their exp. lifetimes in taking MRD's from their inherited IRA? (e.g. IRA 1 over B's life, IRA 2 over C's life. etc.)Or is the conclusion the same as Scenario I where B's exp. lifetime is still used for MRD's.

Scenario III:

Each of the IRA's has a "Qualified" Trust X as the named ben. on each IRA. At DOD, Trust X creates sub-trusts Y and Z. B is the sole ben. of Trust Y; C and D are the sole ben. of Trust Z.

As of the DOD, the trustee funds Trust Y with IRA 1. Trust Z is funded with IRA's 2 and 3.

Partial Analysis:

I know that the IRS has ruled that "seperate accounting" under Q&A H-2(B) can not be done where the trust is the named beneficary of a IRA. But can we use the "seperate plan" logic used in Scenario II to say that since Trust Y is funded with IRA 1 the designated ben. is B; and thus B's exp. lifetime can be used for MRD's. Trust Z is funded with IRA 2 and 3, thus C and D are the designated ben.'s for both plans; thus since ages are C>D, C's lifetime should be used for MRD's on IRA 2 and 3?

Thanks in advance for any critique. I would be especially appreciative if you included citations with your analysis.

[IRC401]

In a nutshell:

I have never figured out how to have separate accounts in an IRA and recommend that clients set up separate IRAs if they want to calculate minimum distribution requirements using multiple life expectancies. (On the other hand, I can't prove that separate IRAs are necessary.)

If an individual has multiple IRAs, the minimum distribution requirement is calculated separately for each IRA (taking into account the beneficiary of each IRA) and then all of the separately calculated amounts are totalled. This total amount may be withdrawn from any of the IRAs. There is IRS guidance on this point, but I don't have the cite handy.

If money is moved from one IRA to another, the rules get complicated. If the client is going to set up multiple IRAs, don't move money among them. Instead use the minimum required distributions to balance the IRAs.