RMD question
Hello,
We manage a Profit Sharing Plan for a company. One of the participants (who was no longer an employee) passed away on Dec. 30, 2016 after his required beginning date. Although he was not an owner of the company, annual RMDs had been taken since he turned 70 1/2.
Each year the TPA/acturial firm provides the Trustees w/ the computed annual RMDs. For the above deceased participant, they stated that his RMD must be distributed before any other distribution is made to either his estate or beneficiary/(ies).
I wanted to confirm if this is correct since (a) the participant passed away in 2016 (on Dec. 30th) and (b) his 2016 RMD had been taken. Accordingly, why would another RMD need to be taken for him in 2017 prior to the sum being able to be distributed?
I am wondering if the TPA/actuarial firm is assuming he passed away in 2017 rather than 2016 as a possible explanation (unless I am incorrect regarding the above).
Please advise. Thanks!
Jason
Permalink Submitted by Alan - IRA critic on Mon, 2017-03-06 20:48
The first distribution taken in 2017 is deemed to apply to the 2017 beneficiary RMD, as it is not the year of death RMD of the participant since that was already completed. Since a direct rollover to an inherited IRA of the beneficiary is considered to be a distribution, the 2017 beneficiary RMD must be distributed first because the RMD is not eligible to be included in the rollover. Not sure why participant’s estate was mentioned because unless the estate was the beneficiary there would not be any distributions made to the estate.
Permalink Submitted by Jason Hochstadt on Mon, 2017-03-06 21:04
Hi Alan, Thanks for the reply. What if the spouse was the beneficiary and taking ownership of the PSP balance for her deceased husband? Since a spouse can do a rollover, in this case would the 2017 RMD need to be distributed first?I believe the reference to the estate is because there is no Beneficiary Form on record located by the TPA to-date.Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2017-03-07 15:53
If married, the spouse would be deemed the beneficiary unless the spouse has waived that right. Some plan provisions require that the marriage took place at least one year before participant’s death. But even if the spouse were the beneficiary, a plan RMD would have to be distributed before doing an IRA rollover.