DIstributions from self-employed decedent w Profit Sharing Plan

Submitted by Chris Farrell on Mon, 2017-12-04 13:58

My father was self-employed and had a Profit Sharing Plan retirement account (he was the only employee of his business).

There are 2 sibling beneficiaries on the account. The custodian is asking the beneficiaries to direct the RMD for the year of death to the estate, saying it is ‘income in respect of a decedent” and pub 559 says that since he would have received the RMD if he had not died it needs to go to his estate.

I’ve tried researching this but it is extra confusing since he is the employer who created the retirement plan and the only employee!

Does the PSP get treated like IRAs w/ beneficiaries taking the RMD or is this different?

Thanks for any assistance.



Submitted by Alan - IRA critic on Mon, 2017-12-04 16:05

  • The plan death benefits are IRD, but distributions are paid to the beneficiaries. The estate only receives distributions if the estate is the plan beneficiary or no beneficiary was named. Pub 559 concurs with this. Is the custodian denying that individuals were named as beneficiaries on the plan document?  
  • There is no difference from other retirement plans such as IRAs.
  • This question also affects taxes in a large way. If the estate received the funds, there would likely be a lump sum distribution with no way to get the funds into inherited IRAs for the slblings. However, as named beneficiaries they could have direct rollovers of their share made to individual inherited IRAs and if this is completed no later than 12/31 of the year following the year of death, each beneficiary could use their own life expectancy for RMD calculations.
  • The year of death RMD can be distributed in any combination to the siblings. For example, if one sibling needs the money and the other prefers to stretch their share of the account, the year of death RMD can be satisfied by distributing the entire shortfall to just one sibling. 1099R should be issued under the name and SSN of the receiving beneficiary, not the estate.
  • You might ask the custodian for the specific paragraph in Pub 559 that the custodian is relying on.

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