What happens if a beneficiary does not take a distribution of the deceased participant’s plan assets until eight years after the participant's death?
Rev. 07/09/09; E-mail Alert 2009-10

The beneficiary will have violated the required minimum distribution rules and is subject to an excise tax in the amount of 50% of the underpayment, which in this case is the entire amount of the deceased participant’s assets that are still undistributed after the end of the five years.

A beneficiary has until December 31 of the 5th year following the year in which the participant died to take a full distribution.  Failing to take a distribution by the end of the 5th year results in the theoretical 50% excise tax penalty.

If the beneficiary is the spouse, the spouse as beneficiary may wait until the deceased would have been 70½ if that is later than the end of the five-year period.

Bill Grossman, ERPA, QPA