Susan Diehl
Simply put, a subsequent beneficiary is nothing more than a beneficiary naming a beneficiary!
Before we look at a few examples, this article discusses the ability for the beneficiary to designate a subsequent beneficiary in the event the original beneficiary dies before the entire account is distributed to that beneficiary.
A spouse beneficiary has always been permitted to name a subsequent beneficiary in the event that the spouse dies before taking the entire balance of the deceased participant’s retirement account. However, different rules apply depending upon if the surviving spouse beneficiary dies before or after the date distributions are required to commence (the Dec. 31 of the calendar year in which the original participant would have attained the age of 70½ had he or she lived.)
Generally once the participant dies, any beneficiary may name a subsequent beneficiary but the subsequent beneficiary’s life expectancy never is considered (with one exception — the “stepping into the shoes” rule). The naming of a subsequent beneficiary is merely to tell the custodian or issuer who to send the next check to after the death of the original beneficiary and the original beneficiary’s single life expectancy is continued to be used in the calculation.
The “Stepping into the Shoes” rule will be covered in a separate article.
Now let’s look at the various scenarios after the death of the original beneficiary.
1. Surviving Spouse Beneficiary Designating a Subsequent Beneficiary When the Participant Dies Before the Required Beginning Date and the Surviving Spouse Dies on or After the Date Distributions are Required to Commence to the Surviving Spouse
If the surviving spouse beneficiary dies on or after the date distributions are required to commence to the surviving spouse (the Dec. 31 of the calendar year in which the participant would have attained the age of 70½ had he or she lived), special rules apply.
When the original spouse beneficiary begins single life distributions, such spouse’s single life expectancy is redetermined each year based upon the spouse’s attained age in each distribution calendar year.
The surviving spouse’s “first distribution calendar year” for this purpose is the calendar year in which the original participant would have attained the age of 70½ had he or she lived.
When the spouse beneficiary dies, distributions will be made to the spouse’s subsequent designated beneficiary calculated using the surviving spouse’s single life expectancy based upon the spouse’s birthday in the calendar year of the spouse’s death. In subsequent calendar years, the spouse’s single life expectancy is then reduced by one year for each year that lapses for calculating payments to the spouse’s subsequent beneficiary.
2. Non-Spouse Beneficiary Designating a Subsequent Beneficiary When the Participant Dies Before the Required Beginning Date
When the participant dies before the required beginning date and the designated beneficiary is not the spouse, the required minimum distribution is calculated using the single life expectancy of the non-spouse beneficiary. The non-spouse beneficiary’s single life expectancy is determined based upon the beneficiary’s birthday in the calendar year following the calendar year in which the participant dies.
In subsequent calendar years, the single life expectancy of the original non-spouse beneficiary is reduced by one year for each year that lapses for determining payments to the non-spouse beneficiary.
When the non-spouse beneficiary dies, any remaining amount is distributed to the non-spouse beneficiary’s subsequent beneficiary by continuing to use the non-spouse beneficiary’s single life expectancy already determined in the calendar year following the calendar year in which the participant dies and then reduced by one year which lapses.
The single life expectancy of the non-spouse beneficiary’s subsequent beneficiary is not considered for determining the remaining distribution period.
A Few Examples
Example: The sole beneficiary of Jean’s IRA is her husband, Pete. Jean dies during 2017, before her required beginning date. Therefore, Jean is not subject to an RMD for the year of her death. A required minimum distribution from her IRAs to the appropriate beneficiary is determined as follows:
Since Pete is Jean’s sole beneficiary, required minimum distributions after Jean’s death are calculated using Pete’s single life expectancy. Since Pete is Jean's sole beneficiary on IRA #1, his required commencement date for RMDs is Dec. 31 of the calendar year in which Jean would have attained the age of 70½ had she lived.
Let’s assume that Jean would have attained age 70½ during calendar year 2020. Pete must begin his single life expectancy distributions by Dec. 31, 2020, using his attained age during 2020.
Let’s assume that on Pete’s birthday during 2020 he will be age 82. The single life expectancy for age 82 is 9.1 years. The minimum distribution for calendar year 2020 is calculated by dividing the account balance as of Dec. 31, 2019, by 9.1.
The required minimum distribution for calendar year 2021 is calculated by dividing the account balance as of Dec. 31, 2020, by 8.6 based upon Pete’s attained age during 2021 of age 83. While Pete is alive, the minimums for each year are determined by Pete’s single life expectancy based upon his birthday in each calendar year.
Pete Dies After 2020
If Pete dies after 2020, the minimum distribution for the year of Pete’s death is still determined based upon Pete’s birthday during the year of his death.
Required minimum distributions for calendar years following the calendar year in which Pete dies are calculated using Pete’s single life expectancy based upon his birthday in the calendar year of death, and then this life expectancy is reduced by one year for each year which lapses for distributions made to his subsequent beneficiaries.
Pete can always withdraw amounts greater than the required minimum distribution amount. Pete can also take a full distribution of Jean’s IRA and roll over (or transfer) into his own IRA.
Pete’s Subsequent Beneficiaries
For purposes of this example, Pete remains as Jean’s beneficiary. The IRA trustee/custodian/issuer permits Pete to name his own subsequent (successor) beneficiary(ies) if he dies before Jean’s IRA is completely distributed to him. Pete designates their two daughters, Misty and Meagan, as his subsequent beneficiaries.
Pete Dies After Dec. 31, 2020 With a Subsequent Beneficiary
Pete must begin single life expectancy distributions beginning in 2020 based upon his birthday during 2020. While Pete is alive, his single life expectancy is redetermined each year by using his attained age in each calendar year.
The year, in which Pete dies, the minimum distribution for that year is based upon Pete’s single life expectancy as of his birthday in the year of his death.
Minimum distributions for calendar years after the calendar year in which Pete dies are calculated using Pete’s single life expectancy as of his birthday during the year of death and then reduced by one year for each year that lapses.
If Misty and Meagan are Pete’s subsequent beneficiaries, distributions are made using Pete’s single life expectancy as described in the prior paragraph. This is true whether or not the financial institution divides the remaining account balance into separate beneficiary accounts.
Susan D. Diehl, CPC, QPA, ERPA, is President, PenServ Plan Services, Inc. and Chair of the NTSA Communications Committee.
Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA or its members.
Simply put, a subsequent beneficiary is nothing more than a beneficiary naming a beneficiary!
Before we look at a few examples, this article discusses the ability for the beneficiary to designate a subsequent beneficiary in the event the original beneficiary dies before the entire account is distributed to that beneficiary.
A spouse beneficiary has always been permitted to name a subsequent beneficiary in the event that the spouse dies before taking the entire balance of the deceased participant’s retirement account. However, different rules apply depending upon if the surviving spouse beneficiary dies before or after the date distributions are required to commence (the Dec. 31 of the calendar year in which the original participant would have attained the age of 70½ had he or she lived.)
Generally once the participant dies, any beneficiary may name a subsequent beneficiary but the subsequent beneficiary’s life expectancy never is considered (with one exception — the “stepping into the shoes” rule). The naming of a subsequent beneficiary is merely to tell the custodian or issuer who to send the next check to after the death of the original beneficiary and the original beneficiary’s single life expectancy is continued to be used in the calculation.
The “Stepping into the Shoes” rule will be covered in a separate article.
Now let’s look at the various scenarios after the death of the original beneficiary.
1. Surviving Spouse Beneficiary Designating a Subsequent Beneficiary When the Participant Dies Before the Required Beginning Date and the Surviving Spouse Dies on or After the Date Distributions are Required to Commence to the Surviving Spouse
If the surviving spouse beneficiary dies on or after the date distributions are required to commence to the surviving spouse (the Dec. 31 of the calendar year in which the participant would have attained the age of 70½ had he or she lived), special rules apply.
When the original spouse beneficiary begins single life distributions, such spouse’s single life expectancy is redetermined each year based upon the spouse’s attained age in each distribution calendar year.
The surviving spouse’s “first distribution calendar year” for this purpose is the calendar year in which the original participant would have attained the age of 70½ had he or she lived.
When the spouse beneficiary dies, distributions will be made to the spouse’s subsequent designated beneficiary calculated using the surviving spouse’s single life expectancy based upon the spouse’s birthday in the calendar year of the spouse’s death. In subsequent calendar years, the spouse’s single life expectancy is then reduced by one year for each year that lapses for calculating payments to the spouse’s subsequent beneficiary.
2. Non-Spouse Beneficiary Designating a Subsequent Beneficiary When the Participant Dies Before the Required Beginning Date
When the participant dies before the required beginning date and the designated beneficiary is not the spouse, the required minimum distribution is calculated using the single life expectancy of the non-spouse beneficiary. The non-spouse beneficiary’s single life expectancy is determined based upon the beneficiary’s birthday in the calendar year following the calendar year in which the participant dies.
In subsequent calendar years, the single life expectancy of the original non-spouse beneficiary is reduced by one year for each year that lapses for determining payments to the non-spouse beneficiary.
When the non-spouse beneficiary dies, any remaining amount is distributed to the non-spouse beneficiary’s subsequent beneficiary by continuing to use the non-spouse beneficiary’s single life expectancy already determined in the calendar year following the calendar year in which the participant dies and then reduced by one year which lapses.
The single life expectancy of the non-spouse beneficiary’s subsequent beneficiary is not considered for determining the remaining distribution period.
A Few Examples
Example: The sole beneficiary of Jean’s IRA is her husband, Pete. Jean dies during 2017, before her required beginning date. Therefore, Jean is not subject to an RMD for the year of her death. A required minimum distribution from her IRAs to the appropriate beneficiary is determined as follows:
Since Pete is Jean’s sole beneficiary, required minimum distributions after Jean’s death are calculated using Pete’s single life expectancy. Since Pete is Jean's sole beneficiary on IRA #1, his required commencement date for RMDs is Dec. 31 of the calendar year in which Jean would have attained the age of 70½ had she lived.
Let’s assume that Jean would have attained age 70½ during calendar year 2020. Pete must begin his single life expectancy distributions by Dec. 31, 2020, using his attained age during 2020.
Let’s assume that on Pete’s birthday during 2020 he will be age 82. The single life expectancy for age 82 is 9.1 years. The minimum distribution for calendar year 2020 is calculated by dividing the account balance as of Dec. 31, 2019, by 9.1.
The required minimum distribution for calendar year 2021 is calculated by dividing the account balance as of Dec. 31, 2020, by 8.6 based upon Pete’s attained age during 2021 of age 83. While Pete is alive, the minimums for each year are determined by Pete’s single life expectancy based upon his birthday in each calendar year.
Pete Dies After 2020
If Pete dies after 2020, the minimum distribution for the year of Pete’s death is still determined based upon Pete’s birthday during the year of his death.
Required minimum distributions for calendar years following the calendar year in which Pete dies are calculated using Pete’s single life expectancy based upon his birthday in the calendar year of death, and then this life expectancy is reduced by one year for each year which lapses for distributions made to his subsequent beneficiaries.
Pete can always withdraw amounts greater than the required minimum distribution amount. Pete can also take a full distribution of Jean’s IRA and roll over (or transfer) into his own IRA.
Pete’s Subsequent Beneficiaries
For purposes of this example, Pete remains as Jean’s beneficiary. The IRA trustee/custodian/issuer permits Pete to name his own subsequent (successor) beneficiary(ies) if he dies before Jean’s IRA is completely distributed to him. Pete designates their two daughters, Misty and Meagan, as his subsequent beneficiaries.
Pete Dies After Dec. 31, 2020 With a Subsequent Beneficiary
Pete must begin single life expectancy distributions beginning in 2020 based upon his birthday during 2020. While Pete is alive, his single life expectancy is redetermined each year by using his attained age in each calendar year.
The year, in which Pete dies, the minimum distribution for that year is based upon Pete’s single life expectancy as of his birthday in the year of his death.
Minimum distributions for calendar years after the calendar year in which Pete dies are calculated using Pete’s single life expectancy as of his birthday during the year of death and then reduced by one year for each year that lapses.
If Misty and Meagan are Pete’s subsequent beneficiaries, distributions are made using Pete’s single life expectancy as described in the prior paragraph. This is true whether or not the financial institution divides the remaining account balance into separate beneficiary accounts.
Susan D. Diehl, CPC, QPA, ERPA, is President, PenServ Plan Services, Inc. and Chair of the NTSA Communications Committee.
Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA or its members.
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