IRA Death Distributions
IRA death distributions have been a mystery to many since the release of the IRS temporary regulations in 1987. At that time the IRS announced that the final regulations would be released by December 31, 1987.
The temporary regulations contained many goolish provisions. One of my favorites was a clause in the IRS model agreement which required custodians and trustees to pay a total distribution to those who did not start distributions by the required beginning date. This was later dropped. Another was a provision for beneficiaries not starting distributions on time. In such cases the beneficiary elected the five year rule by default.
Those of us in the retirement industry waited, and waited, and waited. and waited some more for the final regulations. Finally, 15 years later the final regulations were released in 2002. Several provisions affected death payments. Methods were introduced to eliminate forced total distributions. My favorite new mechanism is the use of a dead person's life expectancy to calculate lifetimes distributions. Life expectancy tables were updated to include a new uniform table.
The bottom line is that the IRS had the opportunity to drastically simplify the distribution regulations, but they chose to go in the opposite direction. To be fair I guess you can't blame the IRS from trying to improve job security.
General Death Rules
The 10% additional tax on early withdrawals is not imposed on death distributions.
All death distributions must be paid-out in the name and social security number or federal ID number of the beneficiary.
Distributions paid from a decedent’s IRA through a beneficiary IRA, must be coded as death distributions on IRS Form 1099-R.
All distributions paid from individual retirement accounts must be reported as income by the recipient of the distribution (except for nondeductible contributions).
Spouses who have not reached 59 1/2 and who assume ownership or roll the decedent's account into an IRA in their name may be subject to the 10% additional tax on early distributions.
If a spouse is not the sole beneficiary, they are treated as a non-spouse beneficiary for lifetime distribution purposes.
Death Distribution Options
Death distributions have one underlying rule which many misunderstand. There are two sets of death rules: one which applies when the accountholder dies before the required beginning date and another which applies when the owner dies on or after the required beginning date. Simple eh? It really is, but many ignore or don't understand required beginning date.
Required beginning date has one definition, not several. The required beginning date is the April 1 of the year after the 70 1/2 year.
Death Before the Required Beginning Date
Death On or After the Required Beginning Date
Lifetime Distributions for Beneficiaries
Problems With Spouse Rollovers
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