4085 / How are the minimum distribution requirements met after the death of a tax sheltered annuity participant who died before 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 discussed below or can opt to follow the ten-year distribution rule.  Under regulations proposed in 2024, post-SECURE Act, a beneficiaries subject to the ten-year rule are required to take annual RMDs during the ten-year distribution period if the original account owner died on or after his or her required beginning date. See Q 3901 for details. See Q 3903 for the definition of “eligible designated beneficiary” post-SECURE Act.

Pre-SECURE Act, if a participant died before his or her required beginning date, distributions were made under one of two methods:

(1)  Under the five year rule, the entire interest must be distributed within five years after the death of the participant regardless of who or what entity receives the distribution.¹ To satisfy this rule, the entire interest must be distributed by the end of the calendar year that contains the fifth anniversary of the date of the participant’s death.²

(2)  Under the life expectancy rule, if any portion of the interest is payable to, or for the benefit of, a designated beneficiary, that portion must be distributed over the life or life expectancy of the beneficiary, beginning within one year of the participant’s death.³