Inheriting Spouse IRA RMD

Submitted by Jay P. on Wed, 2017-10-18 15:28

Mrs. Client died in 2014 at age 67 (DOB: May 1947) with a pre-tax 457 plan at her municipal employer. Her spouse was the 100% primary beneficiary (age 68 at that time. DOB: Oct 1946). The spouse did not rollover the 457 plan to his IRA until now. Balance in the plan on 12-31-16 was $65,601.52. The institution is redeeming the 2017 RMD ($2,394.22) before the rollover. This is based on if Mrs. Client was 70 1/2 this year if she were alive. Is this accurate? Or….should it be based on the inheriting spouse’s RMD ($2,475.53)?
Thank you.



Submitted by Alan - IRA critic on Wed, 2017-10-18 18:18

  • Since plan owner would have been 70.5 this year, an inherited plan RMD is required to be distributed to the sole spousal beneficiary at the time of the IRA rollover.  The calculation of the amount of this RMD uses the surviving spouse’s age at the end of this year which would be 71.  Divisor from Table I is 16.3 and RMD is 4,024.63. Your second RMD amount used the Uniform Table, which applies only to owners, not to beneficiaries. The institution also used the Uniform Table, but apparently used the participant’s age of 70, which is also incorrect. Table I applies and the beneficiary’s age applies. Next year when the funds are in beneficiary’s owned IRA, the RMD will be reduced because the Uniform Table will apply.
  • Also, note that if this account had been an IRA and the surviving spouse rolled it over to their own IRA in any year after the year of death, the surviving spouse would be treated as if they owned the account the entire year and the Uniform Table would apply. However, this was an inherited 457, not an inherited IRA. It is odd that a 457 administrator would apply the inherited IRA rules to a 457 RMD.

Submitted by David Mertz on Wed, 2017-10-18 18:27

  • I came up with the same result of the RMD being $4,024.63 for the same reasons.
  • Note that if too little was distributed as RMD and the rollover of the remainder to the IRA has already occurred, the RMD shortfall has been deposited into the IRA as an excess contribution.

Submitted by Alan - IRA critic on Wed, 2017-10-18 18:51

Yes, further to DMx’ post, if less than 4,024 is distributed as an RMD and the rest rolled over, the plan RMD is treated as being fully distributed and taxable on line 16b. Being not rollover eligible, the shortfall must be removed from the IRA along with allocated income.  All this is not very costly to the beneficiary, but does create a reporting mess since 1040 reporting will not conform to the 1099R. This will require an explanatory statement with the return with respect to both the line 16 reporting and the removal of the excess IRA contribution. Earnings returned from the IRA corrective distribution will be reportable on line 15b of Form 1040.

Submitted by [email protected] on Wed, 2017-10-18 19:25

Okay…thank you both for the input, much appreciated.To clarify…this 457 plan will be rolled to the spouse’s own IRA.  He will not remain as a beneficiary.  Does the single life table factor of 16.1 still apply?  Or…does Table 1 apply simply b/c it is an inherited plan RMD and not an inherited IRA?  What statute can I referernce in order to correct this financial institution?Many thanks.

Submitted by David Mertz on Wed, 2017-10-18 22:25

  • Table I applies because Client is the beneficiary of the 457 plan, not the participant.  Once Client rolls the 457 plan to his own IRA, not an inherited IRA (after first satisfying the beneficiary RMD), Client will be the owner of the IRA and RMDs from that IRA will be determined using Table III.  Even if the plan had been rolled over to an inherited IRA earlier, RMDs as spouse beneficiary of the inherited IRA would be determined using Table I (beginning in 2017).
  • Since the proper amount of the RMD is more than the financial institution has determined, the financial institution cannot prevent Client from taking the correct RMD amount.  Client can simply take a distribution of the proper RMD amount prior to performing the rollover.  But you might simply remind the financial institution that Client is the beneficiary, not participant, and therefore RMDs must be based on Table I (for beneficiaries)using Client’s age, not Table III (for participants) based on Mrs. Client’s age.  RMDs for 457 plan beneficiaries are determined under section 401(a)(9) in exactly the same way as for IRA beneficiaries, so you can refer to 2017 IRS Pub 590-B page 9, Owner Died Before Required Beginning Date.  Otherwise, you’ll end up having to interpret section 401(a)(9) of the US Code and section 401(a)(9)-5 of the Code of Federal Regulations to reach the same understanding.
  • Also note that RMDs can never be based on the deceased participant’s age if the deceased participant died before RBD, as happened in this case.
  • Make sure that the financial institution knows that Mrs. Client is deceased and it’s not Mrs. Client doing the rollover.  The RMD that they determined would be correct if Mrs. Client was doing the rollover.

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