Q: Suppose you have a 403b client who was over 80 years old when he passed away. His son inherited several of his 403b accounts which included mutual fund and fixed annuity 403b accounts. You changed all of the accounts to inherited accounts except for one fixed annuity that the son agreed to defer to the annuity contract for five years. Does the son need to include the deferred annuity values in the calculation for the required minimum distribution (RMD) for 2016? If he does, will the deferred annuity company allow him to take the RMD withdrawal from that account?
A: It sounds as though the one annuity that has not been designated an inherited account (where distributions are required over the son's life expectancy) is being held in a frozen status with the intention of emptying the account at the end of the fifth year following the father's death.
Unfortunately, the "five-year rule" does not apply when death occurs after the required beginning date. A distribution from that contract was required for the year of death, and each and every year thereafter. And, because the other accounts have been renamed and treated as inherited accounts, the RMD calculations on the "frozen" account will be based on that account only.