RMD of deceased

Submitted by Robert E Burk on Mon, 2010-03-01 20:58

Husband dies Oct 16, 2009. Date of birth was 2/15/1940. He has a 403(b) from University as a professor. Wife is still alive and her Date of birth is 12/10/1939. Is there an RMD due now? If money is rolled to an IRA for her is there an RMD due prior to the rollover?



Submitted by Alan Spross on Mon, 2010-03-01 23:04

Deaths in or about age 70.5 pose the most confusing RMD questions.

If she rolls the plan over to her own IRA in 2010, there is no RMD due for 2010 from the plan since she is not required to take an RMD as beneficiary until 12/31/2010.
LIkewise, since the plan balance will not be reflected in her 12/31/2009 IRA balance, her 2010 RMD from the IRA will only be based on her actual IRA balance (if she had one) on 12/31/09. Moreover, since she does not reach 70.5 until 2010, she does not HAVE to take an IRA RMD at all in 2010 because her RBD is 4/1/2011. If she defers RMDs to 2011, she will have to take two RMDs in 2011, the one for 2010 using the 12/31/09 IRA balance and the 2011 RMD using the 12/31/2010 balance which will be increased due to the 403b plan rollover in 2010.



Submitted by Robert E Burk on Mon, 2010-03-01 23:17

So, she does not have her own IRA. If she rolls the 403(b) to an IRA in her name…..the first rmd is due when and based on what value, is it 12/31/2010?



Submitted by Anonymous (not verified) on Tue, 2010-03-02 01:01

alan:

I am confused about something:
Are you saying she inherits the 403B as oppossed to assuming it, and thereby does not have to take an RMD in 2010 when she rolls the account over? If there is such a distinction in a 403B and she assumes the 403B then she would have to satisfy the 2010 RMD prior to the 2010 rollover, because she turns 70 1/2 in 2010. No?

Thanks,

pko



Submitted by Alan Spross on Tue, 2010-03-02 01:30

pko,

She cannot assume the 403b, her only option is to remain a beneficiary on the plan. As beneficiary in 2010, she would have to take an RMD by 12/31. Withholding of that RMD by the plan is not required as it would be if we were dealing with an IRA rollover by the employee himself. BUT if she did not roll over the plan by YE 2010, she would trigger an RMD for 2010 as beneficiary since 2010 is also the year decedent would have been 70.5. In this case, the year following owner’s death and the year owner WOULD have reached 70.5 is the same year (2010).

Bob and pko,
Another confusing issue is the question of a YE 2009 IRA account value adjustment for determination of an IRA RMD after the spousal rollover. According to the following from IRS Regs 1.401(a)9-7, there is NO adjustment to the -0- IRA balance (survivor had no prior IRA) as of 12/31/09. This means that she does not have to take ANY RMD for 2010. Her 2011 IRA RMD will be based on the 12/31/2010 IRA account balance:

>>>>>>>>>>>>>>>>>>>>>>>>.
Q–7. What rules apply in the case of a rollover to an IRA of an amount distributed by a qualified plan or another IRA?

A–7. If the surviving spouse of an employee rolls over a distribution from a qualified plan, such surviving spouse may elect to treat the IRA as the spouse’s own IRA in accordance with the provisions in A–5 of this section. In the event of any other rollover to an IRA of an amount distributed by a qualified plan or another IRA, the rules in §1.401(a)(9)–7 will apply for purposes of determining the account balance for the receiving IRA and the required minimum distribution from the receiving IRA. However, because the value of the account balance is determined as of December 31 of the year preceding the year for which the required minimum distribution is being determined and not as of a valuation date in the preceding year, the account balance of the receiving IRA is only adjusted if the amount is not received in the calendar year in which the amount rolled over is distributed. In that case, for purposes of determining the required minimum distribution for the calendar year in which such amount is actually received, the account balance of the receiving IRA as of December 31 of the preceding year must be adjusted by the amount received in accordance with A–2 of §1.401(a)(9)–7.
>>>>>>>>>>>>>>>>>>>>>>

According to above, as long as the IRA receives the funds in the same year distributed (2010), there is no adjustment to the prior -0- balance.



Submitted by Anonymous (not verified) on Tue, 2010-03-02 17:20

alan:

One last clarification on this one:

Are you saying that a spouse beneficiary on [u]any[/u] qualified plan must follow beneficiary RMD rules and can never take advantage of spouse RMD rules? If yes, is that cited in the Final RMD Regulations?

Thanks for your responses.

pko



Submitted by Robert E Burk on Tue, 2010-03-02 22:13

Alan,
I just got out of a meeting with the surviving spouse. The company with the 403(b) changed registration to the spouse as an “inherited savings and investment plan.” So, on a conference call with the company representative, in an attempt to clear things up, we were informed that this was an “inherited account and as such she needed to begin monthly distributions to meet the required federal law” Furthermore, the distributions were to begin March 1st 2010 based on the YE ’09 value. This makes no sense to me. And evidently it did not make any sense to “Karen, the rep” either. She has to research it and will get back to me in 5 to 7 business days. Meanwhile, She could not tell if the first distribution had been sent. The surviving spouse does not need the money and would like to postpone the first distribution as long as possible. I would think the ideal result when this is all said and done would be to make this an IRA in the spouses name. IF so, her first RMD would be in 2011 based on the year end value of 12/31/2010. Correct? And so she would only need to take 1 RMD in 2011. Correct? Your help is greatly appreciated. Thank you!



Submitted by Alan Spross on Wed, 2010-03-03 00:26

Bob,

After some additional research, I need to change course and agree that the plan must distribute RMDs for 2010. If this had been an inherited IRA instead of an inherited QRP, she could have avoided these RMDs and that is what I had been incorrectly thinking, but this is not true with a QRP account. Therefore, whether she rolls the account over to her own IRA or not, the 2010 RMDs are due. And since they are RMDs, she CANNOT roll them over to her own IRA after they are distributed to her. Too bad she did not roll the account over last year, when RMDs were waived. The 403b RMD for 2010 will be 6.135% of the 12/31/09 account balance using Table I and an attained age of 71 for her in 2010.

With respect to the monthly distributions, that must be a plan requirement. The IRS only cares that the RMD for the year is distributed prior to year end. If she goes ahead with the IRA rollover before all these monthly RMDs are completed, the plan will have to distribute the remaining amount of the RMD before doing the rollover. There is no reason not to proceed with the IRA rollover because her RMDs starting next year will be much lower as an IRA owner than they would be as a plan beneficiary. Again, sorry for the bum steer.

pko,
I am not sure whether the above correction addresses your question or not. The only spousal benefit she would get by retaining the inherited plan would be recalculating her age each year, but those RMDs will be much higher than under an owned IRA account since the owned IRAs assume joint life expectancies with a spouse 10 years younger.



Submitted by Anonymous (not verified) on Wed, 2010-03-03 01:29

alan:

I gusss then my understanding of RMD rules in Qualified Plans is unclear.
If a spouse receives assets from another spouse in a QP, I thought the so called assumption takes place and he/she falls under the regular lifetime RMD rules (Uniform Table, for most). You are saying she is treated as a regular beneficiary – inherited status. Is that correct? Then, if she stays in the plan, she is subject to RMD (individual life expectancy recalculated regardless of age)? If she rolls the money over, she then can take advantage of the Uniform Table under the lifetime RMD rules in IRAs. I hope that is all correct?

Thanks.

pko



Submitted by Alan Spross on Wed, 2010-03-03 02:25

Right. Since a surviving spouse can never assume a QRP as their own, they cannot use Table III for owners. They must use Table I which produces a much higher RMD, close to double the Table III RMD. They do have at least four benefits not available to non spouse beneficiaries:

1) Recalculation, ie. use of the actual table divisor each year rather than using a reduction of 1.0 each year
2) No RMDs needed until the year the decedent would have reached 70.5.
3) Can roll over to their own IRA any time they choose, or by default if they fail to take RMD required as a beneficiary
4) Can convert to their OWN Roth IRA rather than an inherited Roth with non spousal RMDs.

Of course, if a former spouse receives part of the plan through a QDRO, they then do have ownership status in the plan.

See p 19011 of att’d:
http://benefitslink.com/taxregs/rmd2002final.pdf



Submitted by Robert E Burk on Mon, 2010-03-15 14:22

Alan,
Regarding this ever confusing situation, I have now learned that the surviving spouse is now listed on this account as ” Jane Doe, inherited non qualified savings and investment plan.” The company is saying that since the inherited plan is non qualified they can use the uniform lifetime table andtake the distributions at the lower rate. I have 2 questions; 1) In this case they are saying she must take a distribution based on the 12/31/09 balance; she did not own this in 09, she obtained the “inherited ” status in Feb ’10 so does she need to take a distribution in ’10? #2) If she does have to take a distribution, after that is completed, can she still roll this into her own IRA? Oh and one more thing, If she leaves this as an inherited non qualified plan, and she dies, can her beneficiary stretch the distributions over their life expectancy?
Thanks a bunch!
Bob



Submitted by Alan Spross on Tue, 2010-03-16 03:26

Bob,
Ever confusing for sure.
Is this definitely a 403b plan? A 403b is technically a non qualified plan, but is treated the same as qualified plans for RMD purposes. However, I know of no plan where a beneficiary while still in beneficiary status can use the uniform table. And the surviving spouse cannot assume ownership of the plan, but could roll it over to an IRA in her own name and then apply the uniform table.

But if the surviving spouse remains as beneficiary, she must use Table I but can recalculate each year. This means using her actual age rather than using the original divisor and reducing it by 1.0 each year. Since an RMD is required in 2010 using the 12/31/09 balance, it still must be taken out prior to an IRA rollover. She could then roll the account (but not the RMD) over to her own IRA and there would be no IRA RMD for the year since it was taken out of the 403b. IRA RMDs for 2011 would be based on her age in 2011, the uniform table, and the 12/31/2010 account balance.

Finally, if she dies while the still a beneficiary of the 403b plan, her successor beneficiary does not get a new stretch. The successor beneficiary must continue RMDs using the surviving spouse’s remaining life expectancy, but now subject to recalculation, ie. the 1.0 annual divisor reduction.

As indicated, I have no idea how they are coming up with the uniform table, since this is only for employees or IRA owners, not beneficiaries.



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