PLR 200045034: Designated IRA beneficiary may use her remaining life expectancy

Plain-English summary

An IRA owner named two equal beneficiaries before her required beginning date and took lifetime required distributions using her own annually recalculated life expectancy. The IRS ruled that the older beneficiary was timely designated and had the shortest life expectancy for calculating required distributions after the owner's death. That beneficiary could use her remaining term-certain life expectancy, 26.9 years for 2000, reducing it by one for each later year. The owner's use of a single life expectancy during life did not prevent that result. The ruling depended on the account continuing to qualify as an IRA under section 408.

Ruling snapshot

• Question: May the older designated beneficiary use her remaining life expectancy for IRA distributions after the owner's death?
• Outcome: Approved use of her remaining term-certain life expectancy.
• Key authorities: IRC §§ 401(a)(9), 408(a)(6); proposed Treas. Reg. § 1.401(a)(9)-1.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Number: 200045034

Washington, DC 20224
Significant Index No.: 401.06-00

Contact Person:
Telephone Number:

In Reference to:
T:EP:RA:T2
Date: AUG 15 2000

LEGEND

Grantor =

IRA X =

Custodian C =
Beneficiary E =

Beneficiary F =

Dear
:

This is in response to your request for a private letter ruling dated
, submitted on your behalf by your authorized representative. In support of your request, you have submitted the following facts and representations.

Grantor was born on , and maintained an individual retirement arrangement, IRA X, with Custodian C. IRA X was established on . On that date, Grantor designated Beneficiary E and Beneficiary F as equal beneficiaries of IRA X to take remaining IRA X assets upon Grantor’s death. Beneficiary E was born on , and
Beneficiary F was born on
.

Grantor attained age 70 ½ during the 1991 calendar year and her date of death was . Grantor’s required beginning date, with respect to the commencement of required minimum distributions under section 401(a)(9) of the Internal Revenue Code (“Code”) from IRA X was April 1, 1992.

In 1991, the calendar year in which Grantor attained age 70 ½, Beneficiary E had the

shortest life expectancy of the two designated beneficiaries. Her single life expectancy was 35.9 in 1991, and her remaining term-certain life expectancy as of calendar year 2000 is 26.9 years.

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On , Grantor filled out a minimum required distribution form with Custodian C and indicated that she wanted minimum distributions to be calculated based on her single recalculated life expectancy. According to information received from Custodian C, Grantor received her required minimum distributions during her lifetime based upon a single life expectancy which was recalculated each year.

In December 1999, Beneficiary E and Beneficiary F received the required minimum distribution that Grantor would have received during 1999 based upon her single recalculated life expectancy as determined in the calendar year 1999. Beneficiary E and Beneficiary F are also the personal representatives of Grantor’s estate.

Based on the above, you request the following letter rulings:

(1) That Beneficiary E is a designated beneficiary for purposes of section 401(a)(9) of the Code with respect to IRA X.

(2) That Beneficiary E was timely selected as Grantor’s designated beneficiary of IRA X for purposes of section 401(a)(9) of the Code.

(3) That Grantor’s use of the single recalculated life expectancy in determining her required minimum distributions during her lifetime does not preclude the use of the term-certain life expectancy of the oldest designated beneficiary in the calendar year after the death of the Grantor.

(4) That in determining the required minimum distributions after the death of Grantor, Beneficiary E may use her remaining term-certain life expectancy commencing with distributions in the calendar year 2000 and reduced by one for each calendar year thereafter.

Section 408(a) of the Code defines an individual retirement account as a trust which meets the requirements of sections 408(a)(1) through 408(a)(6). Section 408(a)(6) of the Code states that under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of an individual for whose benefit the IRA trust is maintained. Section 401(a)(9) of the Code sets forth the general rules applicable to required minimum distributions from qualified plans.

Section 401(a)(9)(A)(ii) of the Code provides that a trust shall not constitute a qualified trust under this subsection unless the plan provides that the entire interest of each employee will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated

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beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).

Section 401(a)(9)(C)(i) of the Code provides that, for purposes of this paragraph, the term “required beginning date” means April 1 of the calendar year following the later of (I) the year in which the employee attains age 70 ½, or (II) the calendar year in which the employee retires. Section 401(a)(9)(C)(i)(II) does not apply to distributions received from an IRA.

Section 401(a)(9)(B)(i) of the Code provides that, where distributions have begun under subparagraph (A)(ii), a trust shall not constitute a qualified trust under this section unless the plan provides that if—

(I) the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), and

(II) 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.

Section 1.401(a)(9)-1 of the Proposed Income Tax Regulations (“Proposed Regulations”), Q&A D-2(a)(1), provides, in pertinent part, that designated beneficiaries are only individuals who are designated as beneficiaries under the plan. In general, it provides that an individual may be designated as a beneficiary under the plan either by the terms of the plan or, if the plan provides, by an affirmative election by the employee (or the employee’s surviving spouse) specifying the beneficiary. A beneficiary designated as such under the plan is an individual who is entitled to a portion of an employee’s benefit, contingent on the employee’s death or another specified event.

Section 1.401(a)(9)-1 of the Proposed Regulations, Q&A D-3(a), provides that for purposes of calculating the distribution period described in section 401(a)(9)(A)(ii) (for distributions before death), the designated beneficiary will be determined as of the employee’s required beginning date. If, as of that date, there is no designated beneficiary under the plan to receive the employee’s benefit upon the employee’s death, the distribution period is limited to the employee’s life (or a period not extending beyond the employee’s life expectancy).

In the present case, Beneficiary E was named as a beneficiary under IRA X by an affirmative election specifying the beneficiary by Grantor dated . Beneficiary E is entitled to a portion of Grantor’s benefit contingent on Grantor’s death. Since Beneficiary E was named a beneficiary on , which was before Grantor’s required beginning date of April 1, 1992, Beneficiary E was selected in a timely manner for purposes of calculating the distribution period described in section 401(a)(9)(A)(ii) of the Code.

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Accordingly, with regard to ruling request one, we conclude that Beneficiary E is a designated beneficiary for purposes of section 401(a)(9) with respect to IRA X. With respect to ruling request two, we conclude that Beneficiary E was timely selected as a designated beneficiary of IRA X for purposes of section 401 (a)(9) of the Code.

Section 401(a)(9)(D) of the Code permits an employee and his spouse to recalculate their life expectancies annually. Section 1.401(a)(9)-1 of the Proposed Regulations, Q&A E-8(a), provides guidance on how an employee’s life expectancy is recalculated and provides that upon the death of the employee, the recalculated life expectancy of the employee (or the employee’s surviving spouse) will be reduced to zero in the calendar year following the calendar year of death. In any calendar year in which the last applicable life expectancy is reduced to zero, the plan must distribute the employee’s entire remaining interest prior to the last day of such year in order to satisfy section 401(a)(9).

Section 1.401(a)(9)-1 of the Proposed Regulations, Q&A E-8(b), provides guidance on calculating the applicable life expectancy when the employee’s life expectancy is being recalculated and the life expectancy of his designated beneficiary is not recalculated. It provides, in relevant part, that if the designated beneficiary is not the employee’s spouse and the life expectancy of the employee is being recalculated annually, the applicable life expectancy for determining the minimum distribution for each distribution calendar year will be determined by recalculating the employee’s life expectancy but not recalculating the beneficiary’s life expectancy. Such applicable life expectancy is the joint and last survivor expectancy using the employee’s attained age as of the employee’s birthday in the distribution calendar year and an adjusted age of the designated beneficiary. The adjusted age of the designated beneficiary is determined as follows: The beneficiary’s applicable life expectancy is calculated based on the beneficiary’s attained age as of the beneficiary’s birthday in the calendar year described in E-1, reduced by one for each calendar year which has elapsed since that calendar year. The age (rounded if necessary to the higher age) in Table V of section 1.72-9 of the Income Tax Regulations is then located which corresponds to the designated beneficiary’s applicable life expectancy. Such age is the adjusted age of the designated beneficiary. As provided in paragraph E-8(a), upon the death of the employee, the life expectancy of the employee is reduced to zero in the calendar year following the calendar year of the employee’s death. Thus, for determining the minimum distribution for such calendar year and subsequent calendar years, the applicable life expectancy is the applicable life expectancy of the designated beneficiary determined under this paragraph.

Section 1.401(a)(9)-1 of the Proposed Regulations, Q&A E-1(a), provides, generally, that for required distributions under section 401(a)(9)(A) of the Code, life expectancies are calculated using the employee’s (and the designated beneficiary’s) attained age as of the employee’s birthday (and the designated beneficiary’s birthday) in the calendar year in which the employee attains age 70 ½.

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Section 1.401(a)(9)-1 of the Proposed Regulation, Q&A E-5(a)(1), provides, generally, that if more than one individual is designated as a beneficiary with respect to an employee as of the applicable date for determining the designated beneficiary, the designated beneficiary with the shortest life expectancy will be the designated beneficiary for purposes of determining the distribution period.

Since Grantor’s life expectancy was being recalculated annually, upon her death, in accordance with Q&A E-8(a) of section 1.401(a)(9)-1 of the Proposed Regulations, her life expectancy was reduced to zero in the calendar year following the calendar year of death (i.e., 2000). Although Grantor’s life expectancy was paid in the form of a single life expectancy, upon her death, her life expectancy was not the last applicable life expectancy because she timely designated her beneficiaries by her required beginning date in accordance with Q&A D-3(a) of section 1.401(a)(9)-1 of the Proposed Regulations. Therefore, pursuant to Q&A E-8(b) of section 1.401(a)(9)-1 of the Proposed Regulations, for purposes of determining the minimum distribution in the calendar year after the death of Grantor, the applicable life expectancy is the life expectancy of the designated beneficiary as determined under that section.

Given that more than one individual was designated as a beneficiary with respect to the Grantor as of April 1, 1992, pursuant to section 1.401(a)(9)-1 of the Proposed Regulations, Q&A E-5(a)(1), the beneficiary who is the oldest and, correspondingly, who has the shortest life expectancy, will be the designated beneficiary for purposes of determining the distribution period under IRA X.

Thus, with regard to ruling request three we conclude that Grantor’s use of the single recalculated life expectancy in determining the required minimum distributions during her lifetime does not preclude the use of the term-certain life expectancy of the oldest designated beneficiary in the calendar year after Grantor’s death.

Beneficiary E had the shortest life expectancy of the two designated beneficiaries on Grantor’s required beginning date, April 1, 1992. Therefore, she should be the designated beneficiary whose life expectancy will be used when determining the minimum distribution period under IRA X for the calendar year commencing after the year of Grantor’s death, and for all subsequent years.

Pursuant to Q&As E-1(a) and E-8(b) of section 1.401(a)(9)-1 of the Proposed Regulations, Beneficiary E’s applicable life expectancy is calculated based on her attained age as of her birthday in the calendar year in which Grantor attained age 70 ½ (i.e., 1991), reduced by one for each calendar year which has elapsed since that calendar year. Her single life expectancy in the year that Grantor attained age 70 ½ was 35.9 years. Therefore, as of the calendar year 2000, the remaining term-certain period with respect to Beneficiary E is 26.9 years. In accordance with Q&A E-8(b), this period is reduced by one for each calendar year subsequent to 2000.

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Therefore, with respect to ruling request four we conclude that in determining the required minimum distribution after the death of Grantor, Beneficiary E may use her remaining term- certain life expectancy commencing with distributions in the calendar year 2000, and reduced by one for each calendar year thereafter.

The above ruling is contingent upon the continuation of IRA X as one described under section 408 of the Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited by others as precedent.

In accordance with a power of attorney on file with this office, a copy of this ruling is being sent to your authorized representative.

Sincerely yours,

[illegible]

Joyce E. Floyd, Manager

Employee Plans Technical Group 2
Tax Exempt and Government Entities
Division

Enclosures:
Deleted copy of letter ruling
Notice of intention to disclose

cc: