Spouse Inherited 401(k) – Custodian used Joint/Survivor Table to calculate RMD, but spouse is not 10 years younger
Our client inherited her late husband’s 401(k). Both spouses were born in the same year and over age 72, so before rolling the plan to an IRA, the Custodian forced out her RMD — however they used the Joint/Last Survivor Table causing the RMD to be twice as large as it would have been had they used the Uniform Table.
Questions are:
Is there ever a reason to use the Joint/Last Survivor Table when spouse is not 10+ years younger than decedent?
Can we simply do a 60-day Rollover of the amount over the RMD calculated using the Uniform Table into the new IRA?
Thank you,
Lori
Permalink Submitted by Alan - IRA critic on Wed, 2022-04-13 17:06
The plan administrator is incorrect and made a very rare error that may well have been made for several employees. The Uniform Table applies here because the surviving spouse was not more than 10 years younger than the employee. Since the joint table can only apply when a sole surviving spouse is more than 10 years younger, it will always result in a lower RMD than the Uniform Table, and never a higher RMD. The amount in excess of the Uniform Table RMD (which assumes the beneficiary is 10 years younger) is not an RMD, therefore a 60 day spousal rollover to client’s own IRA is permitted. Even if the 60 day deadline had passed, the deadline could be extended using self certification and plan error as justification for the self certification deadline extension.
Permalink Submitted by Lori Goeckler on Wed, 2022-04-13 17:52
Thank you for that, Alan. You’re right – I wasn’t even thinking about the Joint RMD always being lower than Uniform, so now I’m really curious where they’re getting the factor they used. I’ll investigate further, and appreciate your reinforcement.
Permalink Submitted by Lori Goeckler on Wed, 2022-04-13 18:06
They used the Single Life Expectancy Table, but she is a spouse and was the named beneficiary on the 401(k). Do you still believe they made an error and that we can roll the amount that exceeds the amount calculated using the Uniform Table? Thank you! Lori
Permalink Submitted by Alan - IRA critic on Wed, 2022-04-13 18:58
Sounds like husband passed and the year of death RMD was completed using the Uniform Table, but the client is doing the IRA direct rollover in the following year or even later. For the years after the death of husband, the RMD for the surviving spouse must use the single life table and a new divisor directly from that table each year rather than reducing the initial divisor by 1.0. Therefore, her RMD for years after the year of death including the year of the IRA rollover will be much higher than the years after the rollover when she can use the much lower Uniform table resulting from ownership of her IRA. She can never use the Uniform table as a 401k beneficiary.
Permalink Submitted by Lori Goeckler on Wed, 2022-04-13 19:29
You’re absolutely right – he passed last year, 2021. Are you saying that if we completed a rollover to an IRA in the same year he passed, the Uniform table would have been used to force out HIS 2021 RMD if not already taken, then starting this year we could continue to use Uniform Table for her IRA? Otherwise, as long as assets remain in the 401(k), she’d always have to use the Single Table, even as a spouse (based on her age every year.) And now that it is rolling to an IRA this year, we can go back to using Uniform Table starting next year? This is incredibly helpful, thank you. What you just explained matches what the Plan Administrator did, but no one there could explain as well as you just did. Do you happen to know where the IRS publishes this rule?
Permalink Submitted by Alan - IRA critic on Wed, 2022-04-13 21:49
The plan RMD for 2021 is not changed by his death. It is the same amount as if he lived the entire year and is calculated using the Uniform Table and the 12/31/2020 value. Before doing a direct rollover this year, the plan must distribute surviving spouse’s beneficiary RMD for 2022 using the new 2022 single life table with the divisor directly from the table. In 2023 the IRA RMD on the 12/31/2022 value will be based on the Uniform Table each year. Therefore, the RMD will only be relatively high for 2022 since 2022 will be the only year for which the higher single life table will have to be used.
Permalink Submitted by Lori Goeckler on Thu, 2022-04-14 15:21
Good morning, Alan. I don’t think I communicated my question clearly. Could we have avoided her RMD based on the Single Table if we rolled the 401(k) to her IRA in the same year that he passed? I did find Publication 590-B once I knew a better way to search, thanks to you!
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-14 15:48
Yes, if the spousal rollover after completing the year of death RMD was completed in the same year, there would not have been a year subject to the single life table. The plan RMD for the year of death would have used the Uniform Table, and her IRA in the following year would also use the Uniform Table. Of course, in many cases if a participant passes late in the year, there is not sufficient time to complete a rollover that same year. Just one year under the single life table is not too bad, considering that surviving spouses sometimes leave the death benefit in the plan and distribute higher RMDs for many years under the single life table.
Permalink Submitted by Lori Goeckler on Thu, 2022-04-14 15:54
Thank you so much for your help understanding this.