Charitable Beneficiary Designations
Tax Avoidable on Charitable Beneficiary Designation for IRA or Qualified Plan. - Generally,
neither a retiree's estate nor a tax-exempt charity is subject to income tax on amounts the charity
receives as a beneficiary of the retiree's qualified retirement plan or IRA. However, the retiree
must carefully structure the charity’s beneficial interest in order to obtain a charitable deduction
for estate tax purposes. (Ltr. Rul. 200425027.) See Chapters 2, 4, and 5 of the treatise for
discussions of charitable beneficiary designations.
Required Minimum Distributions for Plans and IRAs
Suspension of Minimum Distribution Requirements for 2009. – Congress has eliminated
minimum distribution requirements for IRAs and defined contribution plans for the year 2009.
Thus, a retiree who chooses to take distributions in 2009 from an IRA or defined contribution plan
may transfer or roll over even the portion that would have been a required minimum distribution
absent the suspension. Although a plan or IRA is not required to make trustee-to-trustee
transfers of such suspended amounts, it may do so if it chooses. In addition, the direct
distribution of such amounts to a retiree by a defined contribution plan is not subject to the
normal 20 percent tax withholding, and the retiree may elect to eliminate other types of
withholding tax.
However, this provision does not affect a retiree’s required beginning date for distributions. For
example, a retiree whose required beginning date is April 1, 2010 need not take a minimum
distribution for 2009. However, the retiree must take the required minimum distribution for 2010
no later than the last day of that year. Even after the retiree’s death, the retiree’s beneficiary must
also use the retiree’s normal required beginning date to determine the applicable method for
determining minimum distributions. In addition, if the five-year minimum distribution rule applies
to a beneficiary, the beneficiary does not count 2009 as one of the five years. For example, the five-
year period ends in 2012, instead of 2011, for a retiree who died in 2006. (I.R.C. § 401(a)(9)(H).)
Other collateral effects of the suspension include the following:
1. Any 2009 deadline for an election of the five-year distribution rule or the life expectancy rule is
extended until the end of 2010.
2. A nonspouse beneficiary of a decedent dying in 2008 (who participated in a plan requiring use
of the five-year distribution rule) has until the end of 2010 to make a direct rollover to an IRA and
elect the life expectancy rule.
3. Spousal consent to the 2009 suspension of required minimum distributions is generally not
required if the parties did not choose a new annuity starting date.
4. The suspension of required minimum distributions for 2009 does not suspend periodic
payments that allow a retiree to avoid the 10 percent penalty tax on premature distributions.
(I.R.C. § 401(a)(9)(H); Notice 2008-82, 2009-41 I.R.B. ___.) See Chapter 8 of the treatise for a
discussion of required minimum distributions.
Minimum Distribution Flexibility for Certain Government Plans. – Proposed regulations
indicate that qualified governmental plans and eligible state/local plans have more latitude in
complying with minimum distribution requirements than other types of plans. The proposed
regulations treat these government plans as satisfying minimum distribution requirements if the
plans comply with a reasonable and good faith interpretation of the Code – apparently, even if that
interpretation is contrary to regulatory provisions. (Prop. Reg. § 1.401(a)(9)-1, Q&A 2(d).) See
Chapter 8 of the treatise for minimum distribution requirements.
Beneficiary Designation by Judicial Reformation. – Beneficiaries of tax-favored retirement plans
qualifying as "designated beneficiaries" may be eligible for longer distribution periods than other
beneficiaries. However, a retiree may fail to properly name a designated beneficiary. In a private
ruling, the IRS allowed an individual to become a designated beneficiary by reason of a state
court reformation of a beneficiary designation form, at least where convincing evidence indicated
that was consistent with the retiree's original intention. However, in a more recent ruling, the IRS
refused to recognize a trust reformation that attempted to eliminate non-individual beneficiaries of
an IRA and thereby allow the post-mortem "creation" of designated beneficiaries. (Ltr. Ruls.
200616039 and 201021038.) See Chapter 8 of the treatise for a discussion of designated
beneficiaries.
Separate Accounts Unavailable When Beneficiary Is a Decedent's Estate. –Beneficiaries of a
decedent's estate may not treat as separate accounts their interests in a plan or inherited IRA
held by them indirectly through the estate. "See through" rules do not apply to an estate. Thus,
required minimum distribution rules are applied to such a plan or inherited IRA as a whole. The
minimum distribution rules are applied in the aggregate even if funds in the plan or inherited IRA
are directly transferred to several new inherited IRAs, each for the benefit of an individual
beneficiary of the estate. (Ltr. Rul. 201128036.) See Chapter 8 of the treatise.
To next page
To previous page
To home page
Tax Avoidable on Charitable Beneficiary Designation for IRA or Qualified Plan. - Generally,
neither a retiree's estate nor a tax-exempt charity is subject to income tax on amounts the charity
receives as a beneficiary of the retiree's qualified retirement plan or IRA. However, the retiree
must carefully structure the charity’s beneficial interest in order to obtain a charitable deduction
for estate tax purposes. (Ltr. Rul. 200425027.) See Chapters 2, 4, and 5 of the treatise for
discussions of charitable beneficiary designations.
Required Minimum Distributions for Plans and IRAs
Suspension of Minimum Distribution Requirements for 2009. – Congress has eliminated
minimum distribution requirements for IRAs and defined contribution plans for the year 2009.
Thus, a retiree who chooses to take distributions in 2009 from an IRA or defined contribution plan
may transfer or roll over even the portion that would have been a required minimum distribution
absent the suspension. Although a plan or IRA is not required to make trustee-to-trustee
transfers of such suspended amounts, it may do so if it chooses. In addition, the direct
distribution of such amounts to a retiree by a defined contribution plan is not subject to the
normal 20 percent tax withholding, and the retiree may elect to eliminate other types of
withholding tax.
However, this provision does not affect a retiree’s required beginning date for distributions. For
example, a retiree whose required beginning date is April 1, 2010 need not take a minimum
distribution for 2009. However, the retiree must take the required minimum distribution for 2010
no later than the last day of that year. Even after the retiree’s death, the retiree’s beneficiary must
also use the retiree’s normal required beginning date to determine the applicable method for
determining minimum distributions. In addition, if the five-year minimum distribution rule applies
to a beneficiary, the beneficiary does not count 2009 as one of the five years. For example, the five-
year period ends in 2012, instead of 2011, for a retiree who died in 2006. (I.R.C. § 401(a)(9)(H).)
Other collateral effects of the suspension include the following:
1. Any 2009 deadline for an election of the five-year distribution rule or the life expectancy rule is
extended until the end of 2010.
2. A nonspouse beneficiary of a decedent dying in 2008 (who participated in a plan requiring use
of the five-year distribution rule) has until the end of 2010 to make a direct rollover to an IRA and
elect the life expectancy rule.
3. Spousal consent to the 2009 suspension of required minimum distributions is generally not
required if the parties did not choose a new annuity starting date.
4. The suspension of required minimum distributions for 2009 does not suspend periodic
payments that allow a retiree to avoid the 10 percent penalty tax on premature distributions.
(I.R.C. § 401(a)(9)(H); Notice 2008-82, 2009-41 I.R.B. ___.) See Chapter 8 of the treatise for a
discussion of required minimum distributions.
Minimum Distribution Flexibility for Certain Government Plans. – Proposed regulations
indicate that qualified governmental plans and eligible state/local plans have more latitude in
complying with minimum distribution requirements than other types of plans. The proposed
regulations treat these government plans as satisfying minimum distribution requirements if the
plans comply with a reasonable and good faith interpretation of the Code – apparently, even if that
interpretation is contrary to regulatory provisions. (Prop. Reg. § 1.401(a)(9)-1, Q&A 2(d).) See
Chapter 8 of the treatise for minimum distribution requirements.
Beneficiary Designation by Judicial Reformation. – Beneficiaries of tax-favored retirement plans
qualifying as "designated beneficiaries" may be eligible for longer distribution periods than other
beneficiaries. However, a retiree may fail to properly name a designated beneficiary. In a private
ruling, the IRS allowed an individual to become a designated beneficiary by reason of a state
court reformation of a beneficiary designation form, at least where convincing evidence indicated
that was consistent with the retiree's original intention. However, in a more recent ruling, the IRS
refused to recognize a trust reformation that attempted to eliminate non-individual beneficiaries of
an IRA and thereby allow the post-mortem "creation" of designated beneficiaries. (Ltr. Ruls.
200616039 and 201021038.) See Chapter 8 of the treatise for a discussion of designated
beneficiaries.
Separate Accounts Unavailable When Beneficiary Is a Decedent's Estate. –Beneficiaries of a
decedent's estate may not treat as separate accounts their interests in a plan or inherited IRA
held by them indirectly through the estate. "See through" rules do not apply to an estate. Thus,
required minimum distribution rules are applied to such a plan or inherited IRA as a whole. The
minimum distribution rules are applied in the aggregate even if funds in the plan or inherited IRA
are directly transferred to several new inherited IRAs, each for the benefit of an individual
beneficiary of the estate. (Ltr. Rul. 201128036.) See Chapter 8 of the treatise.
To next page
To previous page
To home page
| Copyright © 2005-2012 by Vorris J. Blankenship All Rights Reserved |
The author intends that this website provide accurate and authoritative information on the subject matter
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.
Key Tax Developments Affecting Retirees
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |