Under the original and final required minimum distribution regulations, the surviving spouse has always had special opportunities.

The surviving spouse of a deceased participant may roll the funds into his or her own IRA or to a qualified plan, if the qualified plan accepts rollovers.

Rollover to IRA
Whether the participant dies before or after the required beginning date for required minimum distributions (RMDs), the surviving spouse is eligible to roll the funds to his or her own IRA. Note that the minimum required distribution for the year of the decedent’s death may not be rolled over. Once the funds are rolled into the surviving spouse’s own IRA, the IRA rules apply for further distributions. Thus, if the spouse is under 70½, no minimum distributions are required until the spouse attains age 70½. At that time, the surviving spouse could use the uniform lifetime table for the IRA RMDs. This is a very popular choice made by many surviving spouses.

Death after age 70½
If the participant dies after the year in which age 70½ is attained, the spouse beneficiary options are different from other beneficiaries. The spouse must start distributions by December 31st of the year after the participant dies or roll to an IRA (the RMD for the year of death may not be rolled over). If the plan permits and the spouse selects to take distributions from the qualified plan, the regulations permit the spouse to use the single life table to determine the life expectancy used to calculate distributions, using his or her own attained age each year. Of course, the spouse could always accelerate the payments, unless the plan or beneficiary form, override any acceleration. 

Death before age 70½
If the participant dies before the December 31st of the year in which age 70½ would be attained, the regulations provide special rules that apply only to a spouse beneficiary, provided they are in the qualified plan. The surviving spouse must begin distributions by the later of:

1. December 31st of the year after the participant died, or
2. December 31st of the year in which the participant would have attained age 70½.

The spouse may establish a life expectancy payout based on the greater of the remaining single life expectancy of the participant or on his or her own single life expectancy.

A spouse may name a beneficiary(s) even if the payouts are being made from the participant’s plan. If the spouse of the deceased participant dies before the plan’s benefits are fully distributed, the spouse’s beneficiaries’ options are based on whether the spouse died before or after benefits commenced.

Surviving spouse death before “benefits commence”
The definition of when “benefits commence” to a surviving spouse in the final regulations is as of December 31 of the calendar year in which the deceased participant attained or would have attained age 70½.  So, if a participant died at age 57 and the spouse started to receive distributions by December 31 of the year after the participant died, and then the surviving spouse died at age 67, the surviving spouse, according to the regulations, did not actually have “benefits commence.”  The significance of this is that there are different options for the then surviving beneficiaries based on whether the participant’s surviving spouse had actually “commenced benefits” or not.

In the final RMD regulations, if the spouse dies before benefits commence, then the beneficiary rules apply as if the spouse were the participant. The spouse’s beneficiary(ies) would use the normal non-spouse beneficiary options but they would use the spouse’s date of birth instead of the participant’s. If no designated beneficiary, the five–year rule would apply.

Special “benefits commence” rule does not apply in the following cases:

• If the participant dies after the year in which the participant attains age 70½.
• If the spouse is not the sole primary beneficiary, then the benefit commencement rules above do not apply. In such a case, the spouse would have to commence benefits by the December 31st after the year of the participant’s death.
• If the surviving spouse remarries and names the new spouse as beneficiary.

Payout from the qualified plan to the surviving spouse.
If the plan permits, the surviving spouse may take payout from the plan as the beneficiary of the decedent over the single life expectancy of the surviving spouse recalculated each year, provided they are started timely. The surviving spouse does not become the participant but rather remains the beneficiary. The surviving spouse may name a beneficiary. Click here for our article on the “Stretch IRA.”

Bill Grossman, QPA