DROP RMD
Client’s husband was a fire fighter. He passed away 15 years ago. Wife inherited his DROP account. It was moved into her name. She opted to leave the proceeds in the plan. She turns 73 in 2025 and, as such, has to start RMDs. They are basing the amount on the single life expectancy table. Is there a reason that they can’t use the uniform table? Thanks in advance.
Glenn
Permalink Submitted by Alan - IRA critic on Mon, 2025-06-02 18:01
Generally, these plans are subject to the IRS RMD rules. While possible, I doubt that the surviving spouse is being treated as the DROP owner, probably just as a beneficiary. A sole surviving spouse must start beneficiary RMDs in the year deceased spouse would have reached RMD age regardless of her own age. What age would he have been in 2025?
The answer would determine when beneficiary RMDs would have been due. If that year was prior to 2024, the wife would not be eligible to elect to be treated as the participant (for RMD purposes only) and her RMD would have to be from the single life table. And it that’s the case here, she should do a direct rollover to her own IRA in order to reduce her RMD to Uniform Table RMDs.
Permalink Submitted by Glenn Wager on Tue, 2025-06-03 01:04
They were both born in 1952, so his RMD would have started in 2025. I could be definitely be mistaken but I have always been under the impression that the wife assumed ownership of the account. The statements appear to show her as the owner, but the fact they are using the single life table seems to support the possibility that she did not. Over the years, we’ve done a number of small partial rollovers from the plan to her IRA to fund Roth conversions. The problem with doing more then that is that the DROP account pays an extremely attractive fixed rate of return and we don’t want to give that up if we can avoid it.
Permalink Submitted by Alan - IRA critic on Tue, 2025-06-03 09:57
So 2025 is her first RMD year whether treated as the owner or the sole beneficiary. If she wants to continue the drop account and is allowed to, she should have the option to notify the plan per Sec 327 of Secure 2.0 that she has elected to be treated as the participant and the Uniform Table will apply. She can make this election because she was not required to take a beneficiary RMD prior to 2024. Perhaps the plan is not yet up to speed or has chosen to ignore this option under the proposed Sec 327 Regs are finalized. If that is the case, she may have to use the single life table this year and make the election next year.