In our last column, we covered the topic of estate planning with qualified retirement benefits. Now we will address the end result—how to proceed upon the death of the account owner to ensure that the account balances are transferred to the beneficiaries as tax-efficiently as possible. The same overall minimum distribution rules will apply whether the account is in a qualified retirement plan, a traditional IRA or a Roth IRA.

If the deceased account owner was already in “payout” status at death because he or she had reached the “required beginning date” for the minimum distributions (generally this occurs upon reaching age 70-and-a-half), the first step is to ensure that the minimum distribution for the year of death is made by the end of the year of death (unless the decedent had already taken it for the year). There is often confusion about whether the distribution goes to the decedent’s estate or to the account beneficiary. Although the distribution is taken because it was required to be taken by the decedent during the year, it does not go to the estate unless the estate was the beneficiary of the account (which usually is not the case). This is because the legal entitlement to all account assets passes to the designated beneficiary as of the date of the account owner’s death. Because Roth IRAs do not have a required payout during the account owner’s lifetime, there is no applicable required beginning date for such accounts before the account owner’s death.

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