Personal Finance (Not Investing) • Re: SECURE ACT 2.0 surviving spouse treated as deceased employee

The employee (age 77) is recently deceased and I would like to know if the survivor (age 80) qualifies for this treatment and how to make it so. The deceased has a 401k and since was still working has not been required to take RMDs. The Spouse is listed as the beneficiary.

The IRS just issued proposed regulations today for the election to treat the spouse as the employee.

Because the employee died before the required beginning date, the election is automatically made for the surviving spouse. Begin taking RMDs now, but use the Uniform Life Table at age 80 to calculate the RMDs.

Although proposed regulations are not final regulations, they are a safe harbor. If you get audited, you can cite the proposed regulations to justify the position you're taking on the tax return.

Proposed § 1.401(a)(9)-5(g)(3)(ii) provides a series of rules that would apply with respect to the spousal election described in § 1.401(a)(9)-5(g)(3)(i) of the 2024 final regulations. Under the proposed regulations, if the employee dies before the required beginning date and the sole beneficiary of the employee is the surviving spouse who is subject to the life expectancy rule, then the spouse would automatically be treated as making the election described in section 401(a)(9)(B)(iv). ...

If the election under § 1.401(a)(9)-5(g)(3)(i) is in effect for a surviving spouse, then, regardless of whether the employee died before, on, or after the required beginning date, the proposed regulations provide that the applicable denominator used for determining the required minimum distribution for each distribution calendar year up to and including the calendar year that includes the surviving spouse's date of death would be determined using the Uniform Lifetime Table (rather than the Single Life Table) for the surviving spouse's age as of the surviving spouse's birthday in the distribution calendar year.

https://www.federalregister.gov/documen ... tributions

Hi B'heads,
B Steiner (Wealth Management dot com) wrote an article about this topic 'Revised Retirement Rules in the SECURE ACT 2.0' back in early 2023.

I'm interested to know if anyone knows anything about this topic or has any suggestions.

From the article :
Surviving Spouse May Elect to Be Treated as Deceased Employee

Section 327 of SECURE Act 2.0 provides that a surviving spouse may elect to be treated as the deceased employee for purposes of the RMD rules, effective beginning in 2024. A surviving spouse who makes this election would begin RMDs no earlier than the date the deceased participant would have reached RMD age. Further, if a spouse beneficiary who makes this election dies before they’re required to start RMDs, the RMD rules would apply as if the spouse beneficiary is the employee.

Fidelity says ACT 2.0 allows a spouse to elect to be treated as the original employee for purposes of using the Uniform Lifetime Table for RMDs instead of the Single Life Expectancy Tables. This sounds like it would be a good idea

The employee (age 77) is recently deceased and I would like to know if the survivor (age 80) qualifies for this treatment and how to make it so. The deceased has a 401k and since was still working has not been required to take RMDs. The Spouse is listed as the beneficiary.

Hopefully bsteiner will come along, see this, and chime in.

Thanks all

Been waiting for guidance from the IRS on this, as consultants have been ignoring Sec 327 of Secure 2.0 so far.

I think that there is going to be several issues with this proposed Reg, as it appears to significantly expand the actual text of Sec 327 of Secure 2.0. Being only a proposed Reg that expands Sec 327, it may take time to digest all the comments the IRS will receive. Sec 327 was intended to bring qualified plans into general conformity to the IRA rules so that spousal rollovers to IRAs would be reduced and instead the surviving spouse would maintain the 401k and be treated as the employee. Consultants generally concluded that Sec 327 was to be mandatory for qualified plans starting in 2024, but the surviving spouse (SS) needed to make a specific election in writing to the plan to activate this provision. If they did not do so, they would be treated as a beneficiary as before and not have to begin beneficiary RMDs until the participant would have reached RMD age.

But with the election, not only is the SS allowed to use the Uniform Table for the first time, if the SS is past RMD age they are exempt from RMDs until the deceased spouse would have reached RMD age.

This participant was 77 but still working and was therefore pre RBD at death. As a result, these proposed Regs might have automatically applied the spousal election, which would result in the older SS being treated as the employee and would start taking Uniform Table RMDs starting in 2025. But it's way too soon for 401k administrators to understand these changes and adopt them. Therefore, in this case, the SS might still have to do a direct rollover to their own IRA to be assured of being able to use the Uniform Table and avoid the single life table.

I need some more time to parse this out, but so far have not seen this expanded SS treatment extended to IRA accounts, which have their own Regs per 1.408-8. If this is not extended to IRAs, qualified plans will present broader options to SS beneficiaries than IRAs because they will combine the benefits of both a beneficiary and an employee, while with an IRA the SS is either the owner or the beneficiary but cannot combine the benefits in the same year.

Statistics: Posted by RCL — Sun Jul 21, 2024 12:31 am