Category: Individuals; Compensation & Employee Benefits
Subject: Individual Retirement Account
Title: Minimum Distribution Requirements, Post Mortem
IRC Sections: 408, 401
Filename: 1350.html
Date Produced: 12/94

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Facts
Taxpayer died in June 1994. At the time of her death she had elected to make withdrawals from an IRA in the amount of approximately $65,000 per year in order to meet minimum distribution requirements for taxpayers over age 70-1/2. Prior to her death, the distributions were made once per year in December. Because of the taxpayer's death, no distribution has been taken for the calendar year 1994.

Issue
What are the distribution requirements for 1994 under these circumstances?

Answer
The remaining balance in the IRA must be distributed after the taxpayer's death at least as rapidly as would have been the case had the taxpayer lived. In essence, the distributions cannot be prolonged as a result of the taxpayer's death. Since the taxpayer was withdrawing approximately $65,000 each December, I suggest withdrawing no less than that amount before December 31, 1994. Also, I strongly suggest providing for a modest amount of cushion; i.e., withdraw slightly more than the historical annual distribution.

Discussion
Internal Revenue Code Section 408 controls the tax treatment of IRA's. The regulations under Section 408 (Reg. Sec. 1.408-8, Question A-1) provide that the qualified retirement plan distribution rules of Section 401(a)(9) and regulation 1.409(a)(9)-1 apply to IRA distributions. Section 401(a)(9)(B)(i) and related regulation 1.409(a)(9)-1, Question B-4 provide as follows....if the employee dies before his entire interest has been distributed to him, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death.

The language set forth above provides a clear concept but lacks concrete instructions for action. Presumably, the required annual distribution would decrease slightly each year if the taxpayer continued to live. Given the existence of significant penalties for failure to make the required minimum distribution, and given the lack of clarity of the statutory and regulatory language, I suggest that annual distributions be made which are not less than the highest minimum annual distribution the taxpayer ever received. This should provide a considerable amount of cushion against adverse interpretations of these rather vague rules.