3905 / How does the presence of multiple, contingent or successor beneficiaries impact the minimum distribution requirements?

Editor’s Note: Under regulations finalized in 2024, an account owner is treated as having no eligible designated beneficiary if the owner has multiple designated beneficiaries and one of those beneficiaries is not an eligible designated beneficiary.  However, if any of the individual’s designated beneficiaries is an eligible designated beneficiary because the beneficiary is the child of the individual who had not reached the age of majority at the time of the individual’s death, then the individual is treated as having an eligible designated beneficiary even if the individual has other designated beneficiaries who are not eligible designated beneficiaries.

Multiple Beneficiaries

If more than one beneficiary is designated with respect to an employee as of the date on which the designated beneficiary is to be determined, the designated beneficiary with the shortest life expectancy is the measuring life for purposes of determining the distribution period.¹ Special rules apply if the employee’s benefit is divided into separate accounts, or segregated shares, and the beneficiaries of each account differ.

If an employee has designated multiple beneficiaries, and as of the date on which the designated beneficiary is to be determined, one of the beneficiaries is an entity (such as a trust not meeting applicable requirements or a charitable organization), the employee will be treated as having no beneficiaries.²

Contingent and Successor Beneficiaries

If a beneficiary’s entitlement to an employee’s benefit is contingent on an event other than the employee’s death or the death of another beneficiary, the contingent beneficiary will be considered a designated beneficiary for purposes of determining whether an entity is designated as a beneficiary and the designated beneficiary who has the shortest life expectancy.³ The fact that the contingency may be extremely remote (e.g., two children predeceasing a 67-year-old relative) does not appear to affect this outcome.⁴

In contrast, if a “successor beneficiary’s” entitlement is contingent on the death of another beneficiary, the successor beneficiary’s life expectancy will not be counted for purposes of determining the designated beneficiary who has the shortest life expectancy unless the other beneficiary dies prior to the date on which the beneficiary is determined.⁵

Under the regulations, a successor beneficiary is typically subject to the ten-year payout rule post-SECURE Act. If the original beneficiary was subject to the ten-year rule (so was not an eligible designated beneficiary (EDB)), the successor must continue payments within the same ten-year window. If the previous beneficiary was an EDB and was using the life expectancy method, the successor beneficiary obtains a new ten-year window. A beneficiary subject to the ten-year rule must take annual RMDs if the original beneficiary died after his or her required beginning date (otherwise, no annual RMDs are required). So, the successor beneficiary must first determine whether the original account owner died before his or her required beginning date to determine whether annual RMDs will be required within the ten-year payout window.