Required Minimum Distributions and an Account Holder’s Death

If the designated beneficiary is the surviving spouse, required minimum distributions need not commence before the year in which the deceased account holder would have attained age 70½ had he or she lived until then.

However, this is not the case for non-spouse beneficiaries. Non spouse beneficiaries must commence receiving required minimum distributions on or before the end of the calendar year immediately following the calendar year in which the account holder died.

Designated beneficiary: If there is a designated beneficiary, under current law, the general rule is that the beneficiary can "stretch out" receipt of minimum required distributions over the beneficiary's remaining life expectancy determined as of the beneficiary's age in the year following the year of the account holder's death. However, if the surviving spouse is the designated beneficiary, then the applicable distribution period is measured by the surviving spouse's life expectancy using the surviving spouse's birthday for each distribution calendar year after the calendar year of the account holder's death up through the calendar year of the surviving spouse's death. This means that a surviving spouse who is the sole designated beneficiary is able to recalculate life expectancy each year, something that no one else can do. Being able to recalculate life expectancy has the effect of further stretching out distribution of the benefits because the surviving spouse is in essence rewarded for having survived another year. That is because life expectancy still reaches out further in the future even for an elderly person who has continued to survive, i.e., a living person has some remaining life expectancy irrespective of age.

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No designated beneficiary: Where there is no designated beneficiary, the plan benefits must be paid out by the fifth anniversary of the account holder's death. We will call this the "five-year rule" in this chapter. The five-year rule essentially eliminates the right to stretch out the benefits.

Death after the Required Beginning Date

If the account holder survived until the required beginning date, then the following rules apply:

Designated beneficiary: If there is a designated beneficiary, then the requirements depend upon whether the surviving spouse is the designated beneficiary and whether or not the surviving spouse treated the IRA as inherited or whether the surviving spouse elected to roll over the benefits into a new IRA.

If the surviving spouse simply inherited the IRA and did not elect to treat the IRA as his or her own IRA, which the surviving spouse often has the right to do, then the surviving spouse must take the required minimum distribution for the year of the account holder's death based upon the account holder's life expectancy. However, thereafter, the minimum required distribution will be based upon the surviving spouse's remaining life expectancy, as recalculated for each year of the surviving spouse's over life, or the account holder's remaining life expectancy had he or she survived, if longer.

If the surviving spouse rolled the account holder's benefits into his or her own IRA, then the decedent's required minimum distribution for the year of death must be taken if not taken prior to death. But, thereafter, the required minimum distributions will be based upon the surviving spouse's remaining life expectancy, as recalculated annually.

With respect to designated beneficiaries other than the surviving spouse, the beneficiary must take the required minimum distribution for the year of the decedent's death if it was not taken prior to death. Thereafter, the required minimum distributions will be based upon the beneficiary's remaining life expectancy for the year following death. This life expectancy is fixed and is reduced by one year for each year of the beneficiary's over life, or the account holder's remaining life expectancy, if longer. The IRC Section 401(a)(9) regulations permit a single account to be divided into separate sub-accounts, each having different required minimum distribution provisions, provided that separate accounting, including allocation of investment income, gains and losses, is established. Where there are multiple beneficiaries, it usually makes sense to divide the account, particularly where there is some age disparity between the beneficiaries.

No designated beneficiary: If there is no designated beneficiary, then the applicable distribution period measured by the account holder's remaining life expectancy is the life expectancy of the account holder using the age of the account holder as of the account holder's birthday in the calendar year of the account holder's death. In subsequent calendar years, the applicable distribution period is reduced by one for each calendar year that has elapsed after the calendar year of the account holder's death. If the account holder names no beneficiary, which can happen even where the primary beneficiary predeceases the account holder without a contingent beneficiary, then the deceased account holder's age must continue to be used.

— Read Avoid These 6 Common RMD Errors on ThinkAdvisor.