4085 / How are the minimum distribution requirements met after the death of a tax sheltered annuity participant who died before the required beginning date?

The SECURE Act now requires non-eligible designated beneficiaries to deplete the entire account balance within ten years of the original account owner’s death.  Eligible designated beneficiaries can continue to use the life expectancy method discussed below or can opt to follow the ten-year distribution rule.  Under regulations proposed in 2024, post-SECURE Act, a beneficiaries subject to the ten-year rule are required to take annual RMDs during the ten-year distribution period if the original account owner died on or after his or her required beginning date. See Q 3901 for details. See Q 3903 for the definition of “eligible designated beneficiary” post-SECURE Act.

Pre-SECURE Act, if a participant died before his or her required beginning date, distributions were made under one of two methods:

(1)  Under the five year rule, the entire interest must be distributed within five years after the death of the participant regardless of who or what entity receives the distribution.¹ To satisfy this rule, the entire interest must be distributed by the end of the calendar year that contains the fifth anniversary of the date of the participant’s death.²

(2)  Under the life expectancy rule, if any portion of the interest is payable to, or for the benefit of, a designated beneficiary, that portion must be distributed over the life or life expectancy of the beneficiary, beginning within one year of the participant’s death.³

To the extent that the interest is payable to a non-spouse beneficiary, distributions must begin by the end of the calendar year immediately following the calendar year in which the participant died.⁴ The non-spouse beneficiary’s life expectancy for this purpose is measured as of his or her birthday in the year following the year of the participant’s death. In subsequent years, this amount is reduced by one for each calendar year that has elapsed since the year immediately following the year of the participant’s death.⁵

If the sole designated beneficiary is the participant’s surviving spouse, distributions must begin by the later of the end of the calendar year immediately following the calendar year in which the participant died or the end of the calendar year in which the participant would have reached age 73 (72 for 2020-2022, 70½ pre-2020).⁶ The payout period during the surviving spouse’s life is measured by the surviving spouse’s life expectancy as of his or her birthday in each distribution calendar year for which a minimum distribution is required after the year of the participant’s death.⁷ After the surviving spouse’s death, the distribution period is based on his or her remaining life expectancy. This is determined using the age of the surviving spouse in the calendar year of his or her death, reduced by one for each calendar year that has elapsed after the calendar year of the surviving spouse’s death.⁸

The 2002 regulations set forth tables containing single and joint and survivor life expectancies for calculating required minimum distributions, as well as a Uniform Lifetime Table for determining the appropriate distribution periods.⁹

Unless a plan adopts a provision specifying otherwise, if distributions to a participant have not begun prior to his or her death, they must be made automatically either under the life expectancy rule described above or, if there is no designated beneficiary, under the five year rule.¹⁰ A plan may adopt a provision specifying that the five year rule will apply after the death of a participant, or a provision allowing participants or beneficiaries to elect whether the five year rule or the life expectancy rule will be applied.¹¹