CRPC Required Minimum Distributions and Beneficiary Planning 4 — Questions and Answers
Question 1: A participant in a 403(b) plan has pre-1987 account balances. How are those balances treated for RMD purposes?
- They are entirely exempt from RMD rules during the participant's lifetime (Correct answer)
- They must be distributed by age 70½ regardless of SECURE Act changes
- Pre-1987 403(b) balances are grandfathered and not subject to lifetime RMDs until age 75
- They are aggregated with post-1986 balances for a single RMD calculation
Correct answer: They are entirely exempt from RMD rules during the participant's lifetime
Pre-1987 403(b) account balances are grandfathered and exempt from lifetime RMD requirements under a special rule.
Question 2: Under the 10-year rule for non-eligible designated beneficiaries, when must the entire inherited IRA be fully distributed?
- By December 31 of the 5th year following the owner's death
- By December 31 of the 10th year following the owner's death (Correct answer)
- Within 10 years from the beneficiary's own date of birth
- Ratably over 10 annual installments beginning the year after death
Correct answer: By December 31 of the 10th year following the owner's death
The 10-year rule requires full distribution of inherited IRA assets by December 31 of the 10th year following the IRA owner's death.
Question 3: Which of the following individuals qualifies as an 'eligible designated beneficiary' entitled to stretch distributions over their own life expectancy?
- An adult child who is 45 years old
- A trust named as IRA beneficiary
- A chronically ill individual as defined under IRC Section 7702B (Correct answer)
- A domestic partner who is not legally married
Correct answer: A chronically ill individual as defined under IRC Section 7702B
Chronically ill individuals are one of five categories of eligible designated beneficiaries who may use the life expectancy stretch method under SECURE Act rules.
Question 4: A Roth IRA owner dies in 2024 leaving the account to an adult child. What RMD obligation, if any, applies to the child?
- No RMDs are required; the child must only empty the account by December 31 of the 10th year (Correct answer)
- Annual RMDs based on the child's life expectancy begin the year after death
- RMDs are required in years 1-9 with full distribution in year 10
- The child must take RMDs identical to what the Roth owner would have taken
Correct answer: No RMDs are required; the child must only empty the account by December 31 of the 10th year
Inherited Roth IRAs are subject to the 10-year rule for non-eligible designated beneficiaries but no annual RMDs are required within those 10 years.
Question 5: What is the penalty for failing to take a required minimum distribution, and what discretionary relief did SECURE 2.0 provide?
- 25% excise tax reduced to 10% if corrected in a timely manner (Correct answer)
- 50% excise tax with no possibility of waiver
- 10% early withdrawal penalty applied to the missed RMD amount
- 25% excise tax with no reduction for timely correction
Correct answer: 25% excise tax reduced to 10% if corrected in a timely manner
SECURE 2.0 reduced the RMD failure penalty from 50% to 25%, further reducible to 10% if the shortfall is corrected within the correction window.
Question 6: When calculating an IRA owner's RMD, which table is generally used if the sole beneficiary is a spouse more than 10 years younger?
- Uniform Lifetime Table
- Joint and Last Survivor Table (Correct answer)
- Single Life Expectancy Table
- Fixed-period annuity table
Correct answer: Joint and Last Survivor Table
The Joint and Last Survivor Table is used when the sole designated beneficiary is a spouse who is more than 10 years younger than the IRA owner, producing a longer distribution period.
Question 7: A non-spouse beneficiary inherits an IRA from an owner who died before their required beginning date. Under SECURE 2.0 IRS proposed regulations, what distribution schedule applies in years 1-9 of the 10-year period?
- No annual distributions are required; full balance must be taken only by year 10
- Annual RMDs based on the beneficiary's single life expectancy are required in years 1-9 (Correct answer)
- Distributions are required only in odd-numbered years within the 10-year window
- A fixed percentage of the account must be withdrawn each year
Correct answer: Annual RMDs based on the beneficiary's single life expectancy are required in years 1-9
Under IRS proposed regulations, non-eligible designated beneficiaries must take annual RMDs in years 1-9 when the original owner died on or after their required beginning date.
CRPC Required Minimum Distributions and Beneficiary Planning 4
A participant in a 403(b) plan has pre-1987 account balances.
How are those balances treated for RMD purposes?