4086 / How are the minimum distribution requirements met after the death of a tax sheltered annuity participant who died on or after the required beginning date?

The SECURE Act now requires non-eligible designated beneficiaries to deplete the entire account balance within ten years of the original account owner’s death.  Eligible designated beneficiaries can continue to use the life expectancy method or can opt to follow the ten-year distribution rule.  When the beneficiary inherits from an individual who died on or after the required beginning date, they are not required to take annual distributions during the ten-year distribution period.  See Q 4085 for details on who qualifies as an eligible designated beneficiary.

Pre-SECURE Act

If the participant dies on or after the date distributions have begun (i.e., generally on or after the required beginning date), but before the entire interest in the plan has been distributed, the IRC states that the entire remaining balance generally must be distributed at least as rapidly as under the method of distribution in effect as of the participant’s date of death.¹ This method of distribution will depend on whether the distribution was in the form of distributions from an individual account or annuity payments.²

Under the 2002 regulations, a beneficiary determination is made as of September 30 of the year after the year of the participant’s death.³ If the participant does not have a designated beneficiary as of that date, the participant’s interest is distributed over the remaining life expectancy, using the age of the participant in the calendar year of the participant’s death, reduced by one for each calendar year that elapses thereafter.⁴ If the participant does have a designated beneficiary as of the determination date, the beneficiary’s interest is distributed over the longer of the following: (1) the beneficiary’s life expectancy, calculated as described in Q 4085 under the life expectancy rule (i.e., under Treasury Regulation Section 1.401(a)(9)-5, A-5(c)(1) or (2)), or (ii) the remaining life expectancy of the participant, determined using the age of the participant in the calendar year of death, reduced by one for each calendar year that elapses thereafter (i.e., under Treasury Regulation Section 1.401(a)(9)-5, A-5(c)(3)).⁵