Inheriting a Retirement Plan: Death After the RBD

A retirement plan may be inherited after the death of the primary beneficiary. This individual can then list alternate beneficiaries, including spouses, family members, children and even charities or trusts. Depending on the type of beneficiary listed and when the deceased passed, the required distribution limits will be different. If the deceased passed after the required beginning date (RBD), he or she already began receiving distributions on the account. Therefore, the account essentially picks up where that person left off.

Spouse as Sole Beneficiary

When the spouse is the sole beneficiary on an account where the deceased passed after the RBD, the spouse will elect to receive gradual payment either according to his or her own life expectancy or the remaining life expectancy of the deceased. This is confusing because many people do not understand how life expectancy is calculated. For the surviving spouse, it is calculated according to a table created by the IRS for this purpose. The spouse's life expectancy is re-calculated each year. The deceased's life expectancy is calculated only at the time of death, and one year is deducted from this as each year passes after death. The IRS will require the surviving spouse to pick the longer of the two distribution plans. The spouse essentially has no choice in the election.

Multiple Beneficiaries or Non-Spouse Beneficiary

If an individual other than the spouse is the beneficiary or if the spouse is among many beneficiaries, then the life expectancy of the oldest beneficiary is used. The expectancies are calculated based on the same formulas used for a spouse receiving the amount in full. The longer life expectancy, either the deceased's or the survivor's, is used to determine the amount that will be distributed on an annual basis. Again, the surviving beneficiaries get no choice in this process. It is decided based on simple formulas, and the election will automatically be made for the survivors.

Non Person Beneficiary

For an individual beneficiary, such as a charity or trust, who is not a person, the life expectancy of the deceased is used to calculate distributions. It is important to realize that the distributions would simply be made in full within five years if the deceased passed before the RBD. A non-person has no options in either case, but the distributions are handled very differently depending on the date of death of the account holder. 

Consequences for a Beneficiary

If an account holder passes after the RBD, there is little for a beneficiary to do except sit back and wait to hear what the distribution will be. However, if an account holder passes before the RBD, there are many elections and choices to be made. A beneficiary should immediately check to see if the account holder had begun taking distributions as part of the RBD ruling in order to learn if he or she will have to make difficult choices on how the remaining account balance will be distributed. If the account holder was past the RBD, there are no decisions to be made on behalf of the beneficiary.

blog comments powered by Disqus