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Thomas McJD
Thomas McJD, Tax Attorney
Category: Tax
Satisfied Customers: 6516
Experience:  Experienced Tax Attorney
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Jack and Jill are married. In June 2000, Jack retired on his

Customer Question

Jack and Jill are married. In June 2000, Jack retired on his 62nd birthday, while Jill was age 55. Jack and Jill both agreed to defer receipt of any distribution until Jack’s RBD. If Jack were to die in 2006 (leaving Jill as his sole beneficiary), what options would Jill have regarding distribution form jack’s plans?
Submitted: 4 years ago.
Category: Tax
Expert:  Thomas McJD replied 4 years ago.

TMcJD :

Jack would have been 68-69 depending on his birthday and date of death in 2006. Thus, he would have not yet reached his required beginning date for distributions. Since he died before his required beginning date, Jill would have the following options: 1) take a lump sum distribution, 2) deplete all funds by the end of the fifth year following Jack's death, 3) roll the plan over to her own plan, or 4) treat the plan as an inherited/beneficiary plan and take required minimum distributions based on her life expectancy and beginning the year that follows the year Jack would have turned 70.5.

Customer: replied 4 years ago.
Can you elaborate a little more regarding the following?

4) treat the plan as an inherited/beneficiary plan and take required minimum distributions based on her life expectancy and beginning the year that follows the year Jack would have turned 70.5.

Also, would you provide support for your answer?
Customer: replied 4 years ago.
Also, please elaborate on the following:

2) deplete all funds by the end of the fifth year following Jack's death

Thank you.
Expert:  Barbara replied 4 years ago.

Another expert here - below is the additional information/clarification you requested.

 

Just to reiterate, Spouses who are the sole designated beneficiary can:

1. treat an IRA as their own, or

2. base RMDs on their own current age,

3. base RMDs on the decedent's age at death, reducing the
distribution period by one each year, or

4. withdraw the entire account balance by the end of the 5th year
following the account owner's death, if the account owner died before the
required beginning date.

 

If the account owner died before the required beginning date, the surviving spouse can wait until the owner would have turned 70½ to begin receiving RMDs.


As to treat the plan as an inherited/beneficiary plan and take required minimum distributions based on her life expectancy and beginning the year that follows the year Jack would have turned 70.5. If the owner died before his RBD, base
required minimum distributions for years after the year of the owner's death
generally on the spouse's single life expectancy as shown on Table I in Appendix C.

Example.


You are the owner's surviving spouse and the sole designated beneficiary. The owner would have turned age 70½ in 2013. Distributions begin in 2013. You become 69 years old in 2013. You use Table 1. Your distribution period for 2013 is 17.8. For
2014, when you are 70 years old, your distribution period is 17.0. For 2015,
when you are 71 years old, your distribution period is 16.3.


As to deplete all funds by the end of the fifth year following Jack's death, a beneficiary who is an individual may be required to take the entire account by the end of the fifth year following the year of the owner's death. If this rule applies, no distribution is required for any year before that fifth year.


My point of reference is Publication 590 which can be found at the following:
http://www.irs.gov/publications/p590/ch01.html#en_US_2012_publink1000230753.


I hope this additional information is helpful to you. Thank you.



Customer: replied 4 years ago.
Thanks, XXXXX XXXXX am really confused. The question does not indicate that Jack's plan is an IRA. The responses relate to an IRA. It is my understanding that the 5-year rule does not apply if the beneficiary is the spouse.
Expert:  Thomas McJD replied 4 years ago.
Original expert here. Not sure why someone else stepped into our communication.

I am providing a link to an article that cites the various federal regulations that apply:

http://www.cjtllp.com/publications/estate-planning-required-minimum-distributions

This regards XXXXX XXXXX of retirement plans, not just IRAs.

The 5 year rule can apply when the beneficiary is a surviving spouse if the spouse elects to withdrawal funds over that period of time. That shouldn't be confused to those cases where a beneficiary MUST withdrawal over that period of time and has no other options. In those cases that is the only option. It is simply one of several options where the spouse is the beneficiary

As far as treating it as an inherited retirement plan for distributions -- that might make sense where the required beginning date would be different than if the spouse rolled it over to his/her own retirement plan. Thus, choosing to roll over or treat as an inherited retirement plan versus the other option depends on the age of the surviving spouse and the time at which the deceased spouse would have started requirement minimum distributions.

Please let me know if you need additional clarification. Please let me know if you have trouble accessing the article that provides legal references in support of the answers. Thanks!
Customer: replied 4 years ago.
I will look at the article and let you know if I have any other questions.
Expert:  Thomas McJD replied 4 years ago.
Absolutely, that sounds great. This is a complicated area of the law, so it does take some time to absorb everything. If you want to look up the regulations, you can do that at the following link:

http://www.law.cornell.edu/cfr/text

Thanks.
Customer: replied 4 years ago.
I am still a bit confused about the five year rule. My text states that if no beneficiary is named the five year rule prevails. The text could be wrong. However, I cannot find anything in the Code to support your statement. Additionally, the code does not specifically state that the spouse may take a lump sum distribution. Is this just inherently implied? Don't get me wrong. It makes sense that she should be able to take a lump sum, but I like to be able to support what I saying.
Expert:  Thomas McJD replied 4 years ago.

No, the text is correct. Generally, only the 5 year rule applies when no beneficiary is named. In that case, the new owner must generally make withdrawals over 5 years. However, the surviving spouse has that option. As I noted above, it can be confusing because most references to the 5-year rule are when that is the only option. It would be unusual for the spouse to exercise the option since they can also roll over or treat the retirement as an inherited plan. Yes, a lump sum distribution is always allowed by the retirement plan terms. The code I provided doesn't say that because it governs only what minimum distributions are when a "stretch" method is elected.

Please let me know if you require additional assistance. Thanks.

Thomas McJD, Tax Attorney
Category: Tax
Satisfied Customers: 6516
Experience: Experienced Tax Attorney
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