Beneficiary Second Inherited Question

Submitted by Kevin O'Hearn on Fri, 2023-03-17 16:57

Hello,

I have a complicated beneficiary scenario:

Dad died in 2000 at age 55. Left a 401k account to his wife. It does not appear she treated the assets as her own and took the assets as a spouse beneficiary. She passed away in 2003 at the age of 58.

The son was the second inheritor and the funds were transferee to an inherited non-spousal 401k from which he has been taking RMDs. I know when dealing with twice inherited retirement accounts, the second bene would have continued same payments as the first bene, however the situation is different here because the first bene was a spousal account and I don’t believe there were RMDs required based on decedent’s age.

1. Because neither the wife nor her husband were RMD age yet in 2003 when wife died, I believe no RMDs would have been required by the wife, correct?

2. What life expectancy would the son use now as a second inheritor where he inherited his Mom’s spousal inherited retirement account?

3. Since RMDs were not required by Mom before she died, would son use his own age for RMDs?

Thank you.



Submitted by Alan - IRA critic on Fri, 2023-03-17 17:51

  1. That is correct. Evidently the 401k did not apply the 5 year rule to the spouse or the entire 401k would have had to be distributed in 2005, 
  2. Since the plan used LE, although wife did not have to take RMDs until husband would have reached 70.5, the successor beneficiary son should have started beneficiary RMDs in 2004 using the single life divisor the wife would have used in 2003 less 1.0 for 2004 and for each year beyond 2004.
  3. No. A successor beneficiary can never use their own age, only a designated beneficiary. Since this is a 401k, the plan should have been distributing the correct beneficiary RMD each year starting in 2004. 
  4. Son should still be able to do a direct rollover into an inherited IRA if he wishes, but the RMDs would not change.

Submitted by Kevin O'Hearn on Fri, 2023-03-17 19:41

Thanks for the response. According to the son, the 401k has been distributing RMDs, but has been using his age and LE factor, not the Mom’s. If I am understanding correctly, this is wrong? Should be using Mom’s factor in 2003 reduced by 1 each year?

Submitted by Alan - IRA critic on Fri, 2023-03-17 22:53

I stand corrected. Per IRS Reg 1.401(a)(9)-3 QA 5, if the participant passes prior to RBD and the surviving spouse also passes prior to the date that beneficiary RMDs are required of the surviving spouse, for RMD purposes the surviving spouse is treated as the employee. As such, the son is treated as the designated beneficiary of the surviving spouse and not a successor beneficiary. Therefore, the RMDs should be based on the son’s age in 2004, with that divisor reduced by 1.0 for each year thereafter. The divisors also need to be reset to those of the 2022 RMD tables starting last year. 

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