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As you know, IRS Private Letter Rulings (PLRs) may not be used or cited as precedent. Nevertheless, PLRs can help to provide an indication of IRS thinking on matters as to which there is no, or less than clear, pertinent case law. In PLR 200036047, the IRA holder had eight beneficiaries, including his wife. If these beneficiaries were named to succeed to his interest in a single IRA, IRS rules would require that minimum distribution requirements be applied using the age of the oldest of these beneficiaries.

When calculating required minimum distributions (RMDs) based upon joint and survivor life expectancies, the higher the designated beneficiary’s age is, the higher also will be the RMD.

Therefore, when planning to "stretch" an IRA account by keeping RMDs to a minimum, it is desirable to keep the beneficiary’s age as low as possible. Younger beneficiaries have longer life expectancies, which translate into lower required distributions.

Bear in mind that the Minimum Distribution Incidental Benefit Rule (MDIB) limits the age difference used in these joint life calculations to a maximum of ten years in the case of a non-spouse beneficiary. The true age of a spouse may be used, irrespective of the age difference between the account holder and his or her spouse.

Taxpayer Seeks To Use Sub-Accounts To Maximize Stretch

Under this PLR, before participant’s required beginning date (RBD), he requested that his IRA custodian divide his IRA into separate sub-accounts, each to be funded with a specific amount. Also prior to his RBD, participant named separate beneficiaries for each of the non-spousal sub-accounts. Each sub-account was to be credited with its own gains and losses from the day it was established. Taxpayer sought to have the RMD for each sub-account calculated using the joint life expectancy of the participant and that sub-account’s beneficiary, subject to the MDIB rules.

Although these instructions and requests were made before the participant’s RBD, they were not acted upon by the IRA custodian until after taxpayer's RBD. Nevertheless, IRS treated these requests as timely made elections. The Service agreed that each sub-account’s RMD could be based upon the IRA holder's and the particular sub-account's beneficiary’s joint life expectancy.

The IRS also agreed that, following the account holder's death, each beneficiary could continue receiving distributions based upon his or her remaining life expectancy.

If an IRA company does not have the administrative capacity to administer sub-accounts, the same tax treatment may be obtained by dividing the IRA into several accounts, one for each beneficiary.

Last Updated: 12/15/2002 11:46:00 AM