Entrust Learning Center > Keyword: self directed ira > IRS Rulings Allow Multiple IRA Beneficiaries to Use Own Life Expectancies in Determining RMDs

IRS Rulings Allow Multiple IRA Beneficiaries to Use Own Life Expectancies in Determining RMDs

Multiple beneficiaries of a single IRA may use their own life expectancies to determine the pay-out period based on their shares of a single IRA account.

The IRS issued two rulings in 1999 (Priv. Ltr. Rul. 199931048, and 19921049) (May 12, 1999) containing identical facts which conclude that multiple beneficiaries of a single IRA may use their own life expectancies to determine the pay-out period based on their shares of a single IRA account.

In general, the Code requires that when minimum distributions from an IRA account begin, they may not extend for a longer period than the life expectancy of the employee or the joint life expectancy of the employee and his designated beneficiary.

Prior to the issuance of the Rulings, practitioners understood based on IRS regulations and previous letter rulings that multiple beneficiaries of a single IRA account would each receive a distribution from the account based on the life expectancy of the oldest beneficiary. (Life expectancies are determined in accordance with IRS tables, and are not based on the health of a particular individual.)

For example, if an IRA owner had designated two individuals (age 45 and 50) as beneficiaries of his IRA, it was thought that the IRA owner's account would be paid at his death based on the life expectancy of the 50 year old. The 45 year old beneficiary's pay-out period would be shortened, resulting in a diminution of the 45 year old's tax deferred benefits. The Rulings are favorable because they allow, under certain circumstances, for all but the oldest beneficiary in a multiple beneficiary arrangement to extend the pay-out period for minimum required distributions.

The proposed Treasury Regulations provide that each designated beneficiary's life expectancy may be utilized if, as of the employee's required beginning date (April 1 following the calendar year the IRA owner attains age 70 ½) or the employee's date of death, separate accounts are established, each with a different designated beneficiary. The Rulings expand the language in the regulation to provide that when an IRA owner dies after his required beginning date, but before his required distribution date, non-spousal designated beneficiaries may elect to extend the pay-out of their minimum required distributions over each individual's life expectancy, provided separate accounts are established in the decedent's name prior to the time distributions must begin.

The Rulings provide that a non-spouse beneficiary must elect whether to receive distributions over:

• the five-year period specified in Section 401(a)(9)(B)(ii) of the Code, OR
  

• his or her life expectancy. A non-spousal beneficiary is deemed to elect the life expectancy pay-out period (providing the greatest tax benefits) if he begins taking distributions over his life expectancy beginning no later than December 31 of the calendar year immediately following the year in which the IRA owner dies.

The IRS has informally indicated that designated beneficiaries of an employee's IRA would also be permitted to receive minimum payouts over each individual's life expectancy when an IRA owner dies prior to attaining age 701/2, provided that separate accounts are established by his beneficiaries before the employee would have attained this age. Not every multiple beneficiary situation allows for extending minimum distribution pay-outs, but the rulings provide for some planning opportunities.

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