On Apr 17, 2002, the IRS issued final required minimum distribution (RMD) regulations, which drastically simplified the RMD rules, including the post-death distribution options available to the beneficiary of a retirement account. The distribution options available to a beneficiary are determined by several factors. We'll discuss the primary ones: (1) whether the retirement account owner (referred to herein after as "participant") died before the required beginning date (RBD), (2) whether the beneficiary was the spouse of the deceased, and (3) the age of the beneficiary in relation to the age of the deceased at the time of death.

Death before the Required Beginning Date
If the participant dies before the RBD, the options available to the beneficiary depend on who the beneficiary is and whether he or she is one of multiple beneficiaries:

Spouse as Sole Primary Beneficiary
A spouse who is the sole primary beneficiary of the retirement account may distribute the assets gradually over his or her life expectancy, or fully by December 31 of the fifth year following the year the participant dies. If the spouse elects to distribute the assets over his or her life expectancy, he or she is required to begin receiving post-death distributions either the year following the death of the participant or the year the participant would have reached age 70.5 - whichever year is later.

For the purposes of calculating post-death RMDs, the spouse's life expectancy is determined by using the "Single Life Expectancy Table in Appendix C" of IRS Publication 590. This table must be referred to for each year the spouse needs to calculate the post-death RMD. For instance, if the spouse were required to begin distributions in 2003, he or she would consult the table to determine the life expectancy period for 2003. In 2004, he or she must use the table to determine the life expectancy for 2004.

If the account is an IRA and the spouse is the sole primary beneficiary, he or she also has the option of transferring the assets to his or her own IRA.

Non-Spouse Person and/or Spouse Who Is One of Multiple Beneficiaries
A non-spouse beneficiary or a spouse who is one of multiple beneficiaries may distribute the assets over the life expectancy of the oldest beneficiary or distribute the full balance by December 31 of the fifth year following the year the participant dies. (To read more on this, see Can I stop RMDs on my deceased spouse's IRA?)

Like the life expectancy of the spouse sole beneficiary, the life expectancy is determined by using the "Single Life Expectancy Table in Appendix C" of IRS Publication 590. In this case, however, the table is not referred to each year. Instead, the life expectancy for the year following the death is found on the table and, for each subsequent year, the life expectancy is determined by subtracting 1 from the previous year's life expectancy. If the beneficiaries elect to have the assets distributed over the life expectancy of the oldest beneficiary, then distributions must begin by December 31 of the year following the year the participant dies.

For both the spouse and the non-spouse beneficiary, the life expectancy option is the default option if no election is made. This means the beneficiary is required to distribute the assets over his or her single life expectancy.

Non-Spouse Non-Person Beneficiary
An individual may choose to designate a non-person, such as the individual's estate or a charity, as the beneficiary of his/her retirement account. In this case, the non-person beneficiary must distribute the full balance by December 31 of the fifth year following the year the participant dies.

Death after the Required Beginning Date
If the participant dies after the RBD, these are the options available to the different types of beneficiaries:

Spouse as Sole Primary Beneficiary
The spouse beneficiary is required to distribute the assets over either the life expectancy of the spouse or the remaining life expectancy of the deceased, whichever is longer. If the funds are distributed over the life expectancy of the spouse, his or her life expectancy is re-determined each year. If the funds are distributed over the remaining life expectancy of the deceased, the life-expectancy number is fixed in the year of death and then reduced by 1 in each subsequent year.

Let's say a participant died at age 80 and the spouse beneficiary is 75 years old. According to the "Single Life Expectancy Table", the participant's life expectancy would be 10.2 and the beneficiary's life expectancy would be 13.4. The spouse beneficiary would use 13.4, which is the longer of the two life expectancies. Since the spouse's life expectancy is the longer of the two, he or she must revisit the table each subsequent year to determine the life expectancy for that year. If the ages were reversed and the longer of the two life expectancies was that of the deceased, the spouse would subtract 1 each subsequent year to determine the applicable life expectancy.

Non-Spouse Person Beneficiary and/or Spouse among Multiple Beneficiaries
A non-spouse beneficiary or multiple beneficiaries would be required to distribute the assets over either the remaining life expectancy of the deceased or the life expectancy of the oldest beneficiary, whichever is longer. If the remaining life expectancy of the deceased is used, it is determined in the year in which the participant dies and then 1 is subtracted each subsequent year. If the life expectancy of the beneficiary is used, then it is determined in the year after the participant dies and 1 is subtracted each subsequent year.

Non-Spouse Non-Person Beneficiary
If the beneficiary is a non-person, the assets may be distributed over the remaining life expectancy of the deceased, which is determined in the year in which the participant dies and then reduced by 1 each subsequent year.
In all three cases, distributions must begin by December 31 of the year following the year the participant dies. 

Roth IRA Beneficiary Options
The beneficiary options for Roth IRAs were not addressed in detail in the final RMD regulations. Instead, the RMD regulations state that we should refer to the final Roth IRA regulations, specifically Treasury Regulation §1.408A-6- A-14 and A-15 for the RMD rules that apply to a Roth IRA. These regulations provide that the RMD rules do not apply to the owner of the Roth IRA; however, the post death RMD rules (beneficiary options) do apply to those inheriting a Roth IRA. The options for Roth IRA beneficiaries are the same as those that apply to the Traditional IRA beneficiary if the owner dies before the RBD.

Conclusion - Make Sure You Know Your Options
It is important to note that retirement plans are not required to allow the options provided in the RMD regulations. For instance, as discussed above, RMD regulations provide that a non-spouse beneficiary of a participant who dies before the RBD may distribute the assets over the beneficiary's life expectancy or within five years after the participant dies. Despite these provisions, an IRA plan document or qualified plan may require the beneficiary to distribute the assets in a much shorter period, for instance immediately after the participant dies. If you inherit retirement assets, be sure to check with your plan provider about your available options. In part 2, we take a look at important dates for beneficiaries.

by Denise Appleby (Contact Author | Biography)

Denise Appleby is a retirement plans consultant, freelance writer and editor. Before starting her own business, Appleby Retirement Consulting, Denise worked for Pershing LLC for almost 10 years. While at Pershing, Denise rose to the rank of vice president, and held many positions including retirement plans product manager, manager of the retirement plans technical assistance group and retirement plans training manager. Appleby Retirement Consulting provides technical assistance to financial institutions and financial professionals; content for newsletters, websites and magazines; and technical editing services for books and other retirement plans material. Denise holds several retirement professional designations.