Transfer benefits to older beneficiary prior to beneficiary finalization date

Submitted by Annette Rhodes on Fri, 2018-03-16 13:12

The following excerpt is from a form discussion in 2007. Has anything changed in the last 11 years?

Owner of 401k dies in 2006. Leaves all of 401k to trust. Beneficiaries are three kids. One kid is 40, the others 18 (twins). The 40 year old takes distribution of her full percentage prior to Sept. 30 2007, and rolls it into her own IRA, RMD is no longer based on 40 year old, correct? Basically, the trust beneficiary finalization date allows you to pick and choose trust beneficiaries even after death. Seems odd to me…is this correct? If so, how come everyone in this board always talks about RMDs having to be based on oldest beneficiary of trust? This is the “out”, no?

One answer:
The RMD [for the trust’s beneficiaries] would still be based on the 40 year old because separate account rules do not apply to trust beneficiaries. To eliminate the 40 year old from RMD calculation, that person would need to process a qualified disclaimer under Sec 2518, or (and this second option is less clear) perhaps take a full taxable distribution as might be expected for a charitable beneficiary…..

Does anyone disagree?



Submitted by Alan - IRA critic on Sat, 2018-03-17 01:19

  • Qualified disclaimer or full distribution prior to 9/30 of the interest of the 40 year old should allow the 18 year olds to be treated as the oldest beneficiaries of the trust. There is nothing unique about a charity with respect to full distribution, so this can be used by trustees/individuals as well. A good follow up question here is what happens if the trust can be terminated and the trustee assigns the interest of all 3 beneficiaries to inherited IRAs out of trust before 9/30. Seems like the separate account rule use would be effectively restored. The IRS Regs are not focused on trusts that are terminated before the key date.


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