Multiple IRA beneficiaries' calculations of minimum distributions when IRA owner died before RBD.

• Author: Nissenbaum, Martin

The Service has held, in Letter Rulings 9931048 and 9931049, that multiple beneficiaries of a single individual retirement account (IRA) may use their own individual life expectancies to calculate their required minimum distributions instead of using the oldest beneficiary's life expectancy, when the IRA owner died before his minimum required beginning date (RBD).

Example: A established an IRA and designated B, her husband, as the primary beneficial. A, whose RBD was April 1, 1997, died on Feb. 16, 1997. B's date of birth was May 6,1904. On June 9,1997, B transferred his wife's IRA assets to eight other IRAs in his name. He invested the IRAs' assets in eight different mutual funds and selected six primary and equal beneficiaries (including C), B's beneficiary designation form stated that each beneficiary would be entitled to a one-sixth interest in each of the eight IRAs. B's RBD was Dec. 31, 1998. (Even though B was 93 at the time of the transfer, he was entitled to a new RBD of the last day of the calendar year following the transfer year.)

B died on March 19,1998. He was survived by C and the other five beneficiaries. B had not received any distributions from the eight IRAs before his death. Prior to Dec. 31,1998, C and the other five beneficiaries directed the custodian (by letter) of seven of the eight IRAs to divide each of the seven into six separate accounts, using a direct transfer. Seven of the eight IRA mutual fund accounts were divided. The eighth mutual fund IRA account, totaling $3,761.40, was distributed in equal amounts of $626.90 to each of the six beneficiaries. For the separate accounts, there was an allocation of gains and losses and a separate accounting for each beneficiary's interest since the date of B's death.

Sec. 401(a)(9)(B) (ii) and (iii) sets forth the five-year rule and its exception for distributing the interest of any employee who dies before distributions have begun in accordance with Sec. 401(a)(9)(A)(ii). Sec. 401(a)(9)(B)(iii) provides that, if any portion of an employee's interest is payable to (or for the benefit of) a designated beneficiary, that portion will be distributed (in accordance with regulations) over the life of that designated beneficiary (or over a period not extending beyond his life expectancy) and these distributions are to begin not later than one year after the employee's death date (or such later date as the Secretary may by regulations prescribe). For purposes of Sec...