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Firm Recommends Guidance on ‘Eligible Designated Beneficiary’

SEP. 16, 2020

Firm Recommends Guidance on ‘Eligible Designated Beneficiary’

DATED SEP. 16, 2020
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September 16, 2020

Carol Weiser
Benefits Tax Counsel
Department of the Treasury, Carol.Weiser@treasury.gov

Stephen B. Tackney
Deputy Associate Chief Counsel
Office of Chief Counsel
Internal Revenue Service, stephen.b.tachney@irscounsel.treas.gov

Request for guidance regarding when the determination of an eligible designated beneficiary under Secure may be deferred to a later date under special circumstances

Dear Ms. Weiser and Mr. Tackney:

I respectfully request that Treasury consider granting guidance with respect to “eligible designated beneficiary” status under Secure based on the special circumstances described in this letter.

According to Secure the determination of whether a designated beneficiary is an eligible designated beneficiary is made on the death of an employee. This determination date would normally be made as of the date of death of an IRA owner and a Roth IRA owner as well.

We know that a surviving spouse can be an eligible designated beneficiary under Secure. However that may or may not always be the case. Assume that John, an IRA owner of a traditional IRA created a conduit IRA trust. The beneficiary of his IRA is the trust and the sole designated beneficiary of the trust is Mary, his wife. The trust remaindermen are his children who are successor beneficiaries. Assume that the trust is a qualifying trust and that John passed away in 2021 at age 65. Further assume that Mary passed away in 2024. John would have attained age 68 in 2024. In addition, Mary has a certain distribution commencement date under the IRS regulations.

According to reg. sec. 1.401(a)(9)-3, A-3(b) if the spousal beneficiary is the sole designated beneficiary of the [IRA owner], the distributions must commence on or before the later of (1) The end of the calendar year immediately following the calendar year in which the [IRA owner] died; and (2) The end of the calendar year in which the [IRA owner] would have attained age [72]. John would have attained age 72 in 2028.

However, if Mary the surviving spouse dies before the appropriate distribution commencement date described above, then Mary is treated as an IRA owner. See reg. sec. 1.401(a)(9)-3, A-5. Also see IRS letter ruling 200644022 dated August 22, 2006 that discusses this issue.

Had Mary not died in 2024 and survived until her distribution commencement date, then I would suggest that she be treated as an eligible designated beneficiary by Treasury as of the year she reached her distribution commencement date. So in summary I suggest once again that with respect to a conduit qualifying trust that if a surviving spouse is the sole designated beneficiary of said trust, that the surviving spouse be considered as an eligible designated beneficiary in the year that said spouse reaches the appropriate distribution commencement date as determined under reg. sec. 1.401(a)(9)-3, A-3(b).

The next issue involves a similar issue discussed above but in this case the IRA owner has a Roth IRA instead of a traditional IRA.

Assume that Harvey, a Roth IRA owner creates a trust that is the beneficiary of his Roth IRA account. Sandra, his wife, is the sole designated beneficiary of the trust. The trust is both a conduit trust and a qualifying trust. The trust remaindermen are the siblings of Harvey. The trust remaindermen are successor beneficiaries.

Assume that Harvey passed away in 2021 at age 62. Further assume that Sandra passed away in 2025. Harvey would have attained age 66 in 2025.

Based on these facts what required minimum distribution rules should apply with respect to distributions from Harvey's deceased Roth IRA account to the trust?

Answer: The IRS Roth IRA regulations need to be reviewed in order to answer the question above. Reg. sec. 1.408A-6, A-14(a) provides in part as follows:

The post-death minimum distribution rules under section 401(a)(9)(B) that apply to traditional IRAs . . . also apply to Roth IRAs.

Further reg. sec. 1.408A-6, A-14(b) provides in part as follows:

If the sole beneficiary is the decedent's spouse, such spouse may delay distributions until the decedent would have attained age 70½. . . .

Please note that age 70½ has been changed by Secure to age 72.

According to the Roth IRA regulations discussed above, the trustee need not receive any distributions from Harvey's deceased Roth IRA account until Harvey would have attained age 72. The trust document could provide for interim distributions and/or discretionary distributions. If Sandra had not passed away in 2025, then required minimum distributions would then commence from the Roth IRA account to the trust in the year that Harvey would have attained age 72. That would be in 2031.

Since the Roth IRA distribution regulations at reg. sec. 1.408A-6, A-14(a) provides in part (with a limited exception) that the post-death traditional IRA distribution rules apply to Roth IRAs, then we have to look at the distribution commencement date that applies to Sandra, the sole designated beneficiary of Harvey's trust. The distribution commencement date that applies to Sandra is the year in which Harvey would have attained age 72.

It would appear that since Sandra passed away in 2025 that Sandra would be treated as a Roth IRA owner. This would be consistent with the traditional IRA rules. Also see IRS letter ruling 200644022 dated August 22, 2006.

In view of the above discussion regarding a Roth IRA, I suggest that with respect to a conduit qualifying trust that if a surviving spouse is the sole designated beneficiary of said trust, that the surviving spouse be considered an eligible designated beneficiary in the year that the spouse reaches the distribution commencement date as determined under reg. sec. 1.408A-6, A-14(b) or as otherwise determined as discussed below.

The last issue that has to be clarified under the existing Roth IRA distribution regulations at 1.408A-6, A-14(b) is what distribution rules apply if the sole designated beneficiary of a conduit qualifying trust is the decedent's spouse and the decedent at the time of death has attained age 72 or is older than age 72 at the time of death?

I would suggest that the post-death minimum distribution rules that apply to traditional IRAs be incorporated by reference with respect to post-death distribution rules from Roth IRAs to resolve this last issue. See reg. sec. 1.408A-6, A-14(a).

Accordingly I would think that if the Roth IRA owner died on or after age 72, that the trustee of a conduit qualifying trust would receive required minimum distributions from the Roth IRA commencing on or before the end of the calendar year immediately following the calendar year in which the Roth IRA owner died. I would think that the surviving spouse should be considered by Treasury as an eligible designated beneficiary at that time.

I would also suggest that IRS Publication 590-B be expanded and cover additional detailed information regarding trusts that are the beneficiaries of traditional IRAs and Roth IRAs.

If you have any questions, please feel free to contact me at 516-222-0422 or email me at info.goldbergira@gmail.com.

Sincerely yours,

Seymour Goldberg
GOLDBERG & GOLDBERG, P.C.
Melville, NY

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