RMD and death

Submitted by Carol Prasse on Mon, 2018-08-20 20:29

My husband’s DOB is 10/46. He died 12/17. At the time of his death he was still working and contributing to his employee based 403(b) plan though TransAmerica (TA). I was the beneficiary and asked TA to roll it over to an IRA in my name and send to a different investment firm. TA took out a RMD, sent me a check and withheld federal taxes prior to sending the balance to the other firm. There are two issues here. First, since he was still working, he was not required to take the RMD from his employee account but TA says when he died, he was terminated and therefore subjected now to the RMD, even though I am the beneficiary and only 65. Second, regardless of work status, my understanding is that although my husband turned 70 1/2 in 2017, his required beginning date for the RMD was April 1, 2018 and since he died prior to that date, he was not in payment status and therefore not subjected to the RMD. I am 65 so I am not required to take the RMD either.

TA insists I have to take the RMD. Who is correct?

If I am correct, how do I get TA to reverse this? At this point, they are refusing and insisting I must take the RMD. I have not cashed the check they have sent me and do not intend to do so.

Thanks for your help!



Submitted by Alan - IRA critic on Mon, 2018-08-20 23:43

  • Deaths around 70.5 are always tricky when it comes to RMD rules. The answer boils down to whether your IRA direct rollover was distributed in 2017 or 2018. If 2017, there is no RMD either for your husband as owner or for you as beneficiary because he passed while working and therefore prior to his RBD. However, if the direct rollover was in 2018, 2018 is a beneficiary distribution year for you because it is the year after the participant passed and you husband would not have been 70.5 in a later year than 2018.
  • These rules are included in IRS Reg. 1.401(a)(9)-3 Q 3.  Death of a participant is NOT treated the same as separation from service for RMD purposes however, and there was no 2017 RMD.
  • In addition, there is no mandatory 20% withholding on distributions that are not eligible for rollover and an RMD is never eligible for rollover.  That said, you can request optional withholding if you wish. It is probably not worth the hassle to get them to reverse the withholding, just take credit for it on your tax return for the year of the RMD distribution.
  • Your IRA RMD on the funds rolled over does not start until the year you reach 70.5, but if the plan distribution was in 2018, you are considered a beneficiary for that year with respect to the 403b so a beneficiary RMD is due at the time of an IRA rollover.

Submitted by Carol Prasse on Tue, 2018-08-21 01:13

Thank you for your answer but I am confused.  IRS publication 590B states:  “If an IRA owner dies after reaching age 70 1/2 but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date.”  This is exactly the time period my husband died in (died in Dec 2017 so RBD would have been April 1, 2018) so I’m confused as to why I would have to take the RMD since he died prior to the RBD.  So I understand why there is no 2017 RMD, but why is there one for 2018 because he never entered pay status and now in 2018 I am now the owner and I am not 70 1/2.  What am I misunderstanding?Are there two different directives in two different publications? 

Submitted by Alan - IRA critic on Tue, 2018-08-21 02:46

  • 590 B applies to IRAs, not to 403b plans. In fact, if you had inherited an IRA instead of a 403b, there would be NO RMD for 2017 OR 2018 because if you roll over an inherited IRA to your name in any year after the owner’s death, you are deemed to be the owner of that IRA the entire year. Since you are well under 70.5 there would be no IRA RMD.
  • However, a 403b is different because you cannot own a 403b, only the original participant is treated as the owner.  Therefore, you are considered to be a 403b beneficiary in 2018, even if only for a short time. The rules I cited earlier apply to the 403b RMD of a beneficiary. The 403b equivalent of Pub 590 B is Pub 575, p 37, which conforms to the IRS Reg I cited earlier. Copy of that Reg is below:
  • (b)Spousal beneficiary. In order to satisfy the rule in section 401(a)(9)(B)(iii) and (iv), if the sole designated beneficiary is the employee‘s surviving spouse, distributions must commence on or before the later of -(1) The end of the calendar year immediately following the calendar year in which the employee died; and(2) The end of the calendar year in which the employee would have attained age 70 1/2.

Submitted by Carol Prasse on Tue, 2018-08-21 04:24

Thank you so very, very much for clearing up the confusion over this!  I really appreciate it. 

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