RMD to surviving spouse that is current employee

At our firm we would not combine the accounts.   They are different types of money and while it might not ever make a practical difference the payment of the death benefit money out to have a death 1099-R code.  Here money might have a different code and if surviving spouse is young getting a 1099-R of a 1 vs D might be of note.  

I even have one ESOP that the document for some reason says a beneficiary can't name a beneficiary.  You might want to check the document to see if there are any differences like that.  

Since it is a spouse they can leave it in the plan but I would track two accounts if it were me.  Once you mix the two there is no undoing that if it were needed. 

As a surviving spouse she she can treat the rollover as her own by rolling it over to her IRA or a her account in a Qualified Retirement account (assuming it accepts rollovers). If she does so, the funds lose the "death benefit" characteristic and simply would be a rollover account of the participant in the Plan.

Alternatively she can roll the funds to an Inherited IRA. In which case the funds retain their "death benefit" characteristics but run under the RMD rules based on the participant.

In either case, as a surviving spouse she is not required to distribute the assets under the 10 year rule.

Whether she is better off treating the rollover as her own or an inherited IRA from a tax perspective can depend on a number of factors.

Maybe I'm missing something, but can't she just elect to take it as a lump sum death distribution and then elect a direct rollover to her current (the same) plan? This assumes the plan accepts rollovers, of course, which most do.

16 hours ago, Luke Bailey said:

Maybe I'm missing something, but can't she just elect to take it as a lump sum death distribution and then elect a direct rollover to her current (the same) plan? This assumes the plan accepts rollovers, of course, which most do.

Assuming the plan allows rollovers in would you sign off on short cutting it by simply combining the balances or would you at least get a form completed?

Just curious mostly. 

We ask for a completed application for benefits from the spouse as beneficiary as part of the documentation of the closing out of the deceased participant's account.

As has been alluded to in the replies above, the age difference between the deceased participant and the beneficiary/current employee, and the difference in the size of the account balance in the deceased participant's account versus the beneficiary/current employee's account factor into the decision to keep the accounts separate of combine them.  We have seen beneficiaries who request the accounts be merged (akin to a distribution rollover the deceased participant's account into the beneficiary's account), and beneficiaries who keep the accounts separate where each account has its own RMD calculation.

One of the more interesting circumstances was when the beneficiary/current employee was older than the deceased participant and the employee already was taking their RMD.  The employee determined that due to the deceased participant's account balance and the RMD factors, the employee would have a lower total RMD amount each year.

4 hours ago, ESOP Guy said:

Assuming the plan allows rollovers in would you sign off on short cutting it by simply combining the balances or would you at least get a form completed?

Just curious mostly. 

Only the final step is a shortcut. I'd have the surviving spouse fill out all the regular forms (electronic or paper) to take a distribution of deceased spouse's account, in which they would request a direct rollover. Obviously, the direct rollover would be handled by the plan recordkeeper internally, without a wire transfer or check, although they could use a check if that simplifies/clarifies the process. The rolled over funds would go into a rollover account and take on all the characteristics of a rollover account, e.g. distributability and 10% penalty application if surviving spouse under 59-1/2.