RMDs on 403(b) after death but before transferring into Trust Inherited IRA
Father passed away in 2023 & took full RMD for the year.
Beneficiary was his Trust. Before transferring the 403(b) into a Trust Inherited IRA, the plan provider is requiring an RMD before they move the funds over base on the father’s life expectancy factor (father was 90 at the time of death). Is this accurate? This would represent a large distribution taxable to the 4 beneficiaries of the trust.
Any help would be appreciated. Thx
Permalink Submitted by Alan - IRA critic on Mon, 2024-07-08 17:33
The IRS has waived the 2024 beneficiary RMD if the trust is qualified for look through, therefore the entire 403b plan balance is eligible for direct rollover to an inherited IRA under the trust EIN. A trust qualified for look through should be treated as a designated beneficiary and subject to the 10 year rule as well as the 2024 RMD waiver per Notice 2024-35.
But if the trust is not qualified for look through or the trust info has not been provided to the plan (deadline 10/31/2024), the plan will treat the trust as non qualified and the 2024 beneficiary RMD would be based on the single LE of the participant and would have to be distributed to the trust prior to the direct rollover.
Sounds like the trust needs to establish with the 403b that it is qualified for look through.
Permalink Submitted by Joseph Schwarz on Mon, 2024-07-08 18:07
Thank you for the response. In my desire to be succinct, I missed the mark on explaining the situation fully.
The 403b DID distribute the full RMD for 2023 for the decedent. The plan provider is stating that another RMD (in year after death) MUST be distributed in 2024, based on the father’s life expectancy factor, before they transfer the 403b into an Inherited IRA owned by the trust.
The representative at the plan provider stated that per IRS rules, they are not allowed to transfer the funds until a 2024 RMD occurs (this is not a remainder RMD for 2023, but a brand-new RMD for 2024 based on 4.3 life expectancy factor).
This rule seems to be different from an IRA situation, where one would be able to transfer a Traditional IRA to a Trust Inherited IRA without the Traditional IRA being required to take an RMD in the year AFTER the owner dies.
If the plan representative was correct, and an RMD is required from the plan in the year after death before they can transfer funds, why is it based on the father’s life expectancy factor and not on the trust beneficiaries or the 10-year rule?
Had the trustee of the trust acted quickly, they may have been able to complete the transfer into an Inherited IRA in 2023. If this occurred, I’m assuming we wouldn’t be in this current situation of having to take a massive RMD in 2024. It seems this rule penalizes the beneficiaries of decedents who pass away late in a calendar year. Would it be worth getting a private letter ruling, or appealing to the IRS for a waiver?
Additional information: the trust is qualified for look-through.
Thank you for any additional information you can provide.
Permalink Submitted by Alan - IRA critic on Mon, 2024-07-08 19:06
If the trust is qualified for look through, the plan apparently does not recognize that the trust is treated as a designated beneficiary subject to the 10 year rule for which the 2024 beneficiary RMD has been waived by Notice 2024-35.
Instead, the plan is treating the trust as NQ. That eliminates the 2024 beneficiary RMD waiver and also forces the plan to use the remaining single LE of the participant. That would be correct if the trust were NQ.
You are correct that if the direct rollover could have been done in 2023 there would be no beneficiary RMD and the decedent had completed the 2023 year of death RMD. But once the calendar changed, the plan is always required to distribute the beneficiary RMD before directly rolling over the rest. My point is that the beneficiary RMD for a qualified trust should be waived by the IRS Notice. Maybe the plan thinks that the Notice does not apply to qualified trusts.
These issues should be discussed with the plan administrator to determine their rationale before the direct rollover is requested with a prior distributed large RMD. Maybe they can be convinced that a 2024 beneficiary RMD is not needed. Refer them to the Notice.