Asking about Multiple Individual Beneficiaries, here we have some answers. Part 15

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Multiple Individual Beneficiaries

If as of the end of the year following the year in which the owner dies there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply (IRS P590):

Contributions to Individual Retirement Arrangements IRAs pdf

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Publication 590-B (2020)

i. All the beneficiaries are individuals, and

ii. The account or benefit has not been divided into separate accounts or shares for each beneficiary (IRS P 590).

Beneficiary Is Not an Individual

If the owner’s beneficiary is not an individual (IRS P590) (e.g., if the beneficiary is the owner’s estate), required minimum distributions for years after the owner’s death depend on whether the death occurred before the owner’s required beginning date.

Distributions from Individual Retirement Arrangements (IRAs)

a. Death on or after the required beginning date. To determine the required minimum distribution for the current year divide the account balance at the end of the preceding year by the appropriate life expectancy from Table I (Single Life Expectancy) (For Use by Beneficiaries) in IRS Publication 590. Use the life expectancy listed next to the owner’s age as of his or her birthday in the year of death, reduced by one for each year since the year of death.

b. Death before required beginning date. The entire account must be distributed by the end of the fifth year following the year of the owner’s death. No distribution is required for any year before that fifth year.

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Trust as Beneficiary

 A trust cannot be a designated beneficiary even if it is a named beneficiary. However, the beneficiaries of a trust will be treated as having been designated as beneficiaries if all the following are true (IRS  p590-010):

Retirement Topics – Beneficiary

1. The trust is a valid trust under state law or would be but for the fact that there is no corpus.

2. The trust is irrevocable or will, by its terms, become irrevocable upon the death of the employee.

3. The beneficiaries of the trust who are beneficiaries concerning the trust’s interest in the employee’s benefit are identifiable from the trust instrument.

4. The IRA trustee, custodian, or issuer has been provided with either a copy of the trust instrument with the agreement that if the trust instrument is amended, the administrator will be provided with a copy of the amendment within a reasonable time or all of the following (IRSp590-010)   :

(a) A list of all the beneficiaries of the trust including  and remaindermen beneficiaries with a description of the conditions on their entitlement),

(b) Certification that, to the best of the employee’s

knowledge, the list is correct and complete and that the requirements of (1), (2), and (3) above, are met,

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(c) An agreement that, makes trust instrument is amended at any time in the future, the employee will, within a reasonable time, provide to the IRA trustee, custodian, or make sure corrected certifications to the extent that the amendment changes information previously certified, and

(d) An agreement to provide  trust instrument to the IRA trustee, custodian, or issuer upon demand. If the beneficiary of the trust is another trust and the above requirements for both trusts are met, the beneficiaries of the other trust will be treated as having been designated as beneficiaries for purposes of determining the distribution period. Coats from When Must You Withdraw Assets? (Required Minimum Distributions)

Designating A Trust As Retirement Beneficiary

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Inherited IRAs

The beneficiaries of a traditional IRA must include in their gross income any distributions they receive. The beneficiaries of a traditional IRA can include an estate, dependents, and anyone the owner chooses to receive the benefits of the IRA after he or she dies. Spouse. If an individual inherits an interest in a traditional IRA from their spouse, they can elect to treat the entire inherited interest as their own IRA. Beneficiary other than a spouse. Formerly, when an individual inherited a traditional IRA from someone other than their spouse, they could not treat it as their own IRA. They could not roll over any part of it or roll any amount over into it (§408(d)(3)(C)). Also, they were not permitted to make any contributions to an inherited traditional IRA (§219(d)(4)).

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However, the Pension Protection Act of 2006 extended the special treatment granted to spousal beneficiaries to non-spouse beneficiaries. For distributions after 2006, non-spouse beneficiaries are allowed to roll over (in a trustee to trustee rollover) to an IRA structured for that purpose amounts inherited as a designated beneficiary. Thus, the benefits of a beneficiary other than a surviving spouse may be transferred directly to an IRA. The IRA is treated to be an inherited IRA of the non-spouse beneficiary. For example, distributions from the inherited IRA are subject to the 7-54 distribution rules applicable to beneficiaries. The provision applies to amounts payable to a beneficiary under a qualified retirement plan, governmental §457 plan, or a tax-sheltered annuity.

Note: Nonspouse beneficiaries can also apply for waivers of the 60 day rollover period. Also, this provision will benefit same-sex couples.

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