Participant RMD in year following date of death

Submitted by Howard Hook on Wed, 2024-04-24 20:58

Participant age 78 died in July 2023 having not taken his RMD from 401k plan for company which he owns more than 5%.

Spouse, age 71 satisfied her deceased husband’s 2023 RMD prior to end of 2023 but did not rollover his 401k plan to her IRA in 2023.

She is submitting paperwork now in 2024 to rollover his 401k balance to her IRA and actuary is saying she has to take his 2024 RMD (based on joint life expectancy table) before it can be rolled over to her IRA.

I contend that he does not have a 2024 RMD since he died in 2023 -and that she can rollover his entire 401k balance to her IRA in 2024.

I contend that the only possible RMD would be if she elected to remain as beneficiary of his 401k and would thus have to take over her single life expectancy but this is not what she intends to do.

Any clarification would be helpful

Howard

 



Submitted by Alan - IRA critic on Wed, 2024-04-24 22:04

Prior to 2024, the sole spousal beneficiary of a plan owner that passed after RBD would have to take a beneficiary RMD from the 401k for the current year before rolling the inherited 401k to her own IRA.

However, Sec 327 of Secure 2.0 now requires the plan to allow her to elect to be treated as the plan owner, transforming the inherited 401k to an owned 401k. She will be treated as the owner for 2024, and because she is not yet RMD age, no plan RMD would be required. Furthermore, if she maintained the plan into her own RMD years, as the owner she could use the Uniform Table for her RMD. Sec 327 provides parity for qualified plans with the long standing IRA rules.

BILLS-117hr2617enr.pdf (congress.gov)

After notifying the plan administrator of this irrevocable election, she still has the option to do a direct rollover to her own IRA with no 2024 RMD if she prefers an IRA to the 401k.

Since Sec 327 was not effective prior to 2024, the plan administrator may not be familiar with it. While the above linked Sec 327 does not address whether participant’s death must also be after 2023, as written it should apply to deaths in prior years, but the administrator may not agree. However, this is the only way the surviving spouse can roll to an IRA and avoid a 2024 beneficiary RMD.

Submitted by Alan - IRA critic on Wed, 2024-04-24 22:11

She cannot do a direct rollover to an IRA without completing a 2024 beneficiary RMD from the inherited 401k.

However, Sec 327 of Secure 2.0 should allow her to notify the plan that she is electing to be treated as the participant. This provision is mandatory for the plan. As spouse is not yet RMD age, there will be no 2024 RMD, as the spouse would be treated as the participant for the entire year. Then, if the spouse prefers an IRA to the 401k, after election to be treated as the participant, she could do a direct rollover to an owned IRA with no 2024 RMD.

This provision is newly effective in 2024, and while it appears that it should apply to deaths prior to 2024 as well, the plan administrator may push back on accepting the election. The IRS has not yet clarified if the DOD matters. But completing the election is the only way to avoid a 2024 beneficiary RMD using the single life table.

Submitted by Howard Hook on Wed, 2024-04-24 23:48

Thanks Alan.

The TPA is insisting the RMD is based on joint life expectancy table and is not even recognizing Section 327 of Secure 2.0.

If section 327 did not exist would the RMD ever be based on a joint life expectancy table or it would be as you say the single life expectancy table based on age of beneficiary?

Thx

Howard

Submitted by Alan - IRA critic on Thu, 2024-04-25 00:53

The Uniform and Joint life tables never apply to a beneficiary RMD calculation, only the single life table. The year of death RMD is calculated using the Uniform Table but that’s the only year in which a beneficiary might have to use the Uniform Table or joint life table. And 2024 is not the year of death.

It is also strange that the TPA is referring to the joint life table which never would have applied to this taxpayer even before death because the surviving spouse is not more than 10 years younger. Of course, if Sec 327 is used, that would erase the RMD altogether and avoid a possibly incorrect beneficiary RMD.

Submitted by Howard Hook on Thu, 2024-04-25 02:10

Thanks Alan as always.

I was mistaken with the taxpayer who died – age was more than 10 years older than surviving spouse which is why they referred to Joint table – still doesn’t change your answer I imagine

Howard

Submitted by Alan - IRA critic on Thu, 2024-04-25 02:25

While the joint table applied while the IRA owner lived and for the year of death, that becomes immaterial following the year of death, when the single life table applies for any beneficiary RMDs. However, if the surviving spouse elects to be treated as the participant instead of beneficiary, the Uniform Table will apply.

Add new comment

Log in or register to post comments