403b RMD question...

[CindyBlue]

Hello, I have another question for you all.

As many of you know, my husband was killed in a car accident on August 28. It is been hard enough dealing with his loss, but now I have to deal with his RMD's. (Note for further reference: I don't know how a 403B relates to an IRA (and if a 403B is not an IRA, then we don't have an IRA.) I don't know if the rules are the same for 403Bs and IRAs.)

I don't have to take RMDs until I'm 73, which is in a little over three more years. He had already started taking them. He is 9 1/2 years older than me.

We both worked for the same entity, and we both have two 403Bs each. The reason for having two is because we were contributing to one 403B at Vanguard, then our work shut down the defined benefit pension and created a defined contributions pension 403B at OneAmerica. So we had to stop contributing to our old 403B and contribute to the new one, thus two 403Bs each.

I was finally able to get the two accounts in my name in both Vanguard and OneAmerica. But each company has combined them into one account (so now I have two accounts, one at Vanguard and one at OneAmerica.) Vanguard lists them as two separate parts (funds? sorry, I don't know what the correct term is) but OneAmerica combined it into one amount.

I am getting directly conflicting information from three sources (and from different people within each source!) - Vanguard, the older 403B; OneAmerica, the newer 403B, and with my tax person - as to whether I even need to take RMDs after taking the one for him for this year due to his death, until I am age 73. I have spent hours on the computer researching, and hours and hours and hours on the phone with all three sources trying to get this figured out. Apparently the confusion lies in that the rules are changing due to the Secure Act, or the Secure Act going away, or something. Another big issue causing confusion is that he had to take them but I don't for another three years. So nobody knows what the rules are.

And if I do have to take RMDs for his moneys, how do I do it so the IRS knows it's for him and not for me? And how do I do it from just his money, not the total of both his and mine, which is obviously much larger and will give me quite a tax hit?

Seriously, no one has given me a direct answer to any of these questions. I find it so difficult to believe that retirement companies, who deal with people who are retired and therefore likely to pass away, do not have the answers to these questions.

I would so much appreciate any advice anyone could give me. I promise not to hold anybody accountable…I just desperately need more information to help me think about it and do more research and ask more questions to figure this out.

 

[cathy63]

Hi Cindy -- it sounds like you are treating your husband's 403bs as if they were your own, which is allowed for a spouse. They were rolled over into your own previously existing accounts and now there is only one account at each institution and it only has your name on it. Is that correct? If I've got that right, then you do not have to take any RMDs until the year you turn 73. The money is treated the same as if you yourself had contributed it during your own working years, and his prior RMD history is irrelevant. The SECURE Act does not have any effect on this scenario.

If the inherited money is still being kept in separate accounts that are titled as something like "Spouse's name inherited 403b FBO CindyBlue", then the rules are different. Let me know if that is the case and I'll explain more, but from what you wrote it sounds like this is not your situation.

403bs are not IRAs, but the same rules do apply to both types of accounts when it comes to RMDs.

 

[CindyBlue]

Thank you so much for your reply. I really appreciate your taking the time.

The accounts at both companies do not mention his name at all on the new combined account in my name, since I informed them that he died and filled out their forms to transfer his accounts to my name. The Vanguard one, when I go to the "Balance" page, gives a total amount (both monies combined), then lists "2 Investments", one that by the total used to be his, and one that by the total used to be mine. But there is no (that I can find) reference to his name at all. The OneAmerica one just combined everything onto one account with no reference to his name anywhere, either.

If what you say is true (and I'm hoping it is, because that will simplify my life enormously) and I don't have to take an RMD on either his or mine until I am required to in three years, then why in the world would Vanguard tell me I have to continue to take an RMD every year for my husband's money??

And there is absolutely no question about that that is what they said - they said it multiple times over multiple phone calls and sent me two forms to use to request the RMD. And to make it worse, each of the four different people I've talked with so far at Vanguard said to use one form or the other (and each one was adamant that their form was the one I should be using!) so that the last few phone calls from me to them was to try to verify for sure which form to use! (I can tell you what the two forms are if you need more information.)

My tax man, when I finally thought to call him yesterday (I didn't think I had to call him because after all, I was talking directly to Vanguard and to OneAmerica and I figured they would know what I should do (obviously, silly me!)) thought that I should not have to continue to pay RMDs on my husband's account until I reach age 73, either, but he also said that while he knew for sure that that was the rule for "IRAs," he wasn't sure if the same rules apply for 403bs as for IRAs. He said he'd look it up and call me today (hopefully he will.)

 

[SecondCor521]

My condolences.

@cathy63 is correct as usual. Since you assumed his retirement accounts as your own (which you can do as the surviving spouse), the rule is you treat the account as your own and therefore don't have to do anything with RMDs until you turn 73.

I also wanted to add that Vanguard (and probably OneAmerica too) are *investment* firms, not *tax* firms. Usually they should advise you to contact your tax person for tax answers, but Vanguard's customer service has been in a decline for a few years now and their CSRs might have thought they were helping you out by giving *tax* advice when they really should not. Giving you inaccurate tax advice - which is what they did - is not helpful to you.

 

[CindyBlue]

Hi Cindy -- it sounds like you are treating your husband's 403bs as if they were your own, which is allowed for a spouse. They were rolled over into your own previously existing accounts and now there is only one account at each institution and it only has your name on it. Is that correct? If I've got that right, then you do not have to take any RMDs until the year you turn 73. The money is treated the same as if you yourself had contributed it during your own working years, and his prior RMD history is irrelevant. The SECURE Act does not have any effect on this scenario.

If the inherited money is still being kept in separate accounts that are titled as something like "Spouse's name inherited 403b FBO CindyBlue", then the rules are different. Let me know if that is the case and I'll explain more, but from what you wrote it sounds like this is not your situation.

403bs are not IRAs, but the same rules do apply to both types of accounts when it comes to RMDs.

Talked to Vangurad again this monring (almost two hours), this time (yet another) different person. They said that I WILL have to take an RMD from the "Beneficiary" portion of my account (i.e., his money) for this reason: My husband had already started taking his RMD. If he hadn't, I could move the two accounts together and "treat it as my own" and not take it until three years from now when I'm 73.

This, of course, means that I'll have to take an RMD for my husband's money in his (now my) OneAmerica account, too, and they don't appear to have any form for this. Still not sure how to do it next year since they combined the accounts with no specific beneficiary designation for his so I know what money amount to use to calculate the RMD. Also, because of only one account, I'm not sure how to designate that I took it FOR HIM, not me, to the IRS.

I am so tired of dealing with this...sigh...hours and hours....and looks like hours to come...

 

[Gumby]

I am no expert, but based on this IRS document, it would appear that if you have an inherited retirement account (e.g. 403b), and the deceased was taking RMDs, then you must take RMDs, but you use your own life expectancy. OR, you can do a direct rollover of that 403b into an IRA under your own name and take RMDs according to the requirements applicable to you (i.e. don't need to take RMD until you are of the proper age)

Retirement topics - Beneficiary | Internal Revenue Service

Information on retirement account or traditional IRA inheritance and reporting taxable distributions as part of your gross income.

www.irs.gov

This is one of the reasons I am working to combine all our tax deferred retirement accounts into two tIRAs - one for each of us.

 

[cathy63]

Talked to Vangurad again this monring (almost two hours), this time (yet another) different person. They said that I WILL have to take an RMD from the "Beneficiary" portion of my account (i.e., his money) for this reason: My husband had already started taking his RMD. If he hadn't, I could move the two accounts together and "treat it as my own" and not take it until three years from now when I'm 73.

This, of course, means that I'll have to take an RMD for my husband's money in his (now my) OneAmerica account, too, and they don't appear to have any form for this. Still not sure how to do it next year since they combined the accounts with no specific beneficiary designation for his so I know what money amount to use to calculate the RMD. Also, because of only one account, I'm not sure how to designate that I took it FOR HIM, not me, to the IRS.

I am so tired of dealing with this...sigh...hours and hours....and looks like hours to come...

So this sounds like Vanguard is treating his money as an inherited account rather than an assumed account. If they're doing that, then you would need to take an RMD. Next time you call them, tell them that you want to "assume the account as the surviving spouse, which is allowed by the IRS, so that the money will be treated as your own rather than as inherited funds." Ask for a supervisor if necessary.

OneAmerica is already treating the money as an assumed account and has already combined the funds with yours. You don't have to take an RMD from the OneAmerica account.

If Vanguard is unable to roll his funds into your existing account, then don't worry about how to report the RMD to the IRS. That part is automatic. Vanguard will send a 1099-R to you with your social security number on it. You just report that withdrawal on your tax return, which you can still file jointly for 2024.

In 2025 and subsequent years, you'll file as single, and the RMD (if there is one) will still be reported on your tax return. You don't do anything to tell the IRS it's "his" vs "yours".

 

[SecondCor521]

+1 to everything that @cathy63 wrote immediately above.

CindyBlue, it may help you navigate with Vanguard if you understand that surviving spouses like you have different and additional options from non-spouse beneficiaries. If they understand that you're a surviving spouse and you want to assume the account, then they should (in theory) knock off the "you have to take an RMD" nonsense.

@cathy63, is there any time frame associated with a surviving spouse assuming a retirement account? I can't recall offhand.

 

[cathy63]

@cathy63, is there any time frame associated with a surviving spouse assuming a retirement account? I can't recall offhand.

I don't think there's a hard time limit. I found some documentation once that I think said something like by September of the year after the year of death, but that's a vague recollection so don't rely on it. In any case, it has been a very short time since Cindy lost her husband, so if there is a time limit, it cannot have been exceeded in this case.

My main concern here is that I think the "wrong" type of account has already been created at Vanguard, and I don't know if they're even allowed to fix it. It's possible that Cindy signed a form directing them to do this and that would be because they didn't adequately explain her options and make sure she understood what she was signing.

 

[RetiredHappy]

Based on my understanding is that if your late husband's RMD should have been say, $100K and he had only taken $70K while he was alive, then after his IRA gets transferred to you, you have to take the remaining $30K for this year. Thereafter, RMD will follow your age as to when you need to take.

 

[SecondCor521]

I don't think there's a hard time limit. I found some documentation once that I think said something like by September of the year after the year of death, but that's a vague recollection so don't rely on it. In any case, it has been a very short time since Cindy lost her husband, so if there is a time limit, it cannot have been exceeded in this case.

Thanks, agreed.

My main concern here is that I think the "wrong" type of account has already been created at Vanguard, and I don't know if they're even allowed to fix it. It's possible that Cindy signed a form directing them to do this and that would be because they didn't adequately explain her options and make sure she understood what she was signing.

Schwab once made a mistake with my son's Roth IRA, and they were able to administratively fix it by undoing the mistake and doing what they should have in the first place. I think it helped that it was all in the same calendar year and well before any tax forms were issued.

CindyBlue might have that "administrative correction" option if it is Vanguard's mistake. If she made the mistake, then I agree with you that she's probably stuck, although if I were in her shoes I'd probably still try and ask them to fix it.

 

[CindyBlue]

I am so grateful for everyone's time and input...

I spent literally 5 1/2 hours on the phone with OneAmerica and my tax man yesterday, unfortunately before I'd read your posts about "assumed" vs "inherited" accounts. This is great information, and I'll be back on the phone on Monday.

I'm thinking I have a year to fix this, because at least I was able to get them both (Vanguard and ONeAmerica) to get me the 2024 RMD. The Vanguard 2024 RMD is already here, and the OneAmerica RMD should (finally) be underway since I filled out the form I asked for and they sent me yesterday and drove to town to mail it. The OneAmerica form was not specifically a beneficiary RMD form - they told me to "write a note on it" saying who it was for (my husband.) Doesn't sound very official to me, but I did what they said. That's the one that is completely merged and looks like it can't be separated back out into two designations, as the Vanguard is.

So the Vanguard account, being that it already lists his - in my account, under my name - as a beneficiary designation should be easy (fingers crossed) to take the RMDs from. Right now I'm thinking that I'll just do that every year.

As for the OneAmerica account...that will need an appointment with the IRS, I'm guessing. After the almost two hours on hold with the IRS two days ago trying to line up a face to face appointment (when after almost an hour they disconnected and I called again and hung in there for 45 minutes, but then had to hang up because I had to leave for an appointment...I can still hum their phone music...sigh...) I'm not looking forward to calling again, but I will just have to do it.

My tax man and his partner both thought that I do not have to take any further RMDs on either, but I still think, based on your information and on reading the IRS rules, that I do.

It's all in the interpretation right? The IRS says document referred to earlier says:

"If the account holder's death occurred after the required beginning date, the spouse beneficiary may:
...Keep as an inherited account
.......Take distributions based on their own life expectancy, or
...Rollover the account into their own IRA"

Note the indentations. I'm thinking that if I keep it as an "inherited account" that the words right after, being indented, mean I have to take distributions based on my own life expectancy if I keep it as an inherited account.

I have no idea how to roll it over into an IRA (I should have paid loits more attention years ago to all you all here...sigh...) and I wonder if that is even still an option.

But I'm hoping I have a year to straighten this out since I got this years (2024) RMd.

 

[cathy63]

So the Vanguard account, being that it already lists his - in my account, under my name - as a beneficiary designation should be easy (fingers crossed) to take the RMDs from. Right now I'm thinking that I'll just do that every year.

You can still try to get Vanguard to fix this account by merging it completely with yours. As I wrote previously, tell them you wanted to assume it and not keep it as an inherited account. If you can get them to change it to an assumed account then you do not need to take RMDs.

As for the OneAmerica account...that will need an appointment with the IRS, I'm guessing. After the almost two hours on hold with the IRS two days ago trying to line up a face to face appointment (when after almost an hour they disconnected and I called again and hung in there for 45 minutes, but then had to hang up because I had to leave for an appointment...I can still hum their phone music...sigh...) I'm not looking forward to calling again, but I will just have to do it.

You do not need to do anything more with the OneAmerica account. You don't need to take RMDs from it. You don't need to speak to the IRS about it. OneAmerica did exactly the right thing with this account by making it an assumed account. Just leave this one alone until you turn 73. It doesn't matter at all that any of this money originally came from your DH.

My tax man and his partner both thought that I do not have to take any further RMDs on either, but I still think, based on your information and on reading the IRS rules, that I do.

It's all in the interpretation right? The IRS says document referred to earlier says:

"If the account holder's death occurred after the required beginning date, the spouse beneficiary may:
...Keep as an inherited account
.......Take distributions based on their own life expectancy, or
...Rollover the account into their own IRA"

Note the indentations. I'm thinking that if I keep it as an "inherited account" that the words right after, being indented, mean I have to take distributions based on my own life expectancy if I keep it as an inherited account.

I have no idea how to roll it over into an IRA (I should have paid loits more attention years ago to all you all here...sigh...) and I wonder if that is even still an option.

But I'm hoping I have a year to straighten this out since I got this years (2024) RMd.

Right now, it seems like you do have to take RMDs from the Vanguard account because they did the "keep as inherited account" method. You do not have to take RMDs from the OneAmerica account because they did the "Rollover the account into their own 403(b)" method. Please don't worry about whether it's an IRA. You can just replace "IRA" with "403(b)" everywhere you see it. The inheritance and withdrawal rules for the two accounts are exactly the same. IRAs are just much more common.

 

[CindyBlue]

You can still try to get Vanguard to fix this account by merging it completely with yours. As I wrote previously, tell them you wanted to assume it and not keep it as an inherited account. If you can get them to change it to an assumed account then you do not need to take RMDs.

You do not need to do anything more with the OneAmerica account. You don't need to take RMDs from it. You don't need to speak to the IRS about it. OneAmerica did exactly the right thing with this account by making it an assumed account. Just leave this one alone until you turn 73. It doesn't matter at all that any of this money originally came from your DH.

Right now, it seems like you do have to take RMDs from the Vanguard account because they did the "keep as inherited account" method. You do not have to take RMDs from the OneAmerica account because they did the "Rollover the account into their own 403(b)" method. Please don't worry about whether it's an IRA. You can just replace "IRA" with "403(b)" everywhere you see it. The inheritance and withdrawal rules for the two accounts are exactly the same. IRAs are just much more common.

This info (that 403bs and IRAs are the same) is good to know. My tax people weren't sure about this, but it sure makes sense to me. It will help as I do more reading.

I will get ahold of Vanguard and ask to assume the account. It will be interesting to see if anyone I contact there knows what the heck I"m talking about (smile.) This would make it so much easier. A bigger hit when I have to take it in three years, of course, but at least then I can deal with only "mine."

I just don't understand why no one at either company bothered to explain my options. Why do they assume that we "peons" out here know the subtle differences of these procedures? Or that we have a clue as to what to ask? I know I should educate myself, but this vocabulary "assume" vs "inherit" is above my pay grade.

Also, both Vanguard and OneAmerica used to calculate my husband's RMD, take out the taxes, and just send it to him - we didn't have to, every year, request an "RMD Request Form" and calculate it ourselves and submit the request, the way I'll have to do the beneficiary (ie.e, my husband's) portion of Vanguard) for the next three years unless I can "assume" the account. Hopefully in three years they will do the calculations on the whole account and just send it. (Note: I usually checked the RMD amount they sent with the formula and Table 1, just for fun.)

 

[SecondCor521]

This info (that 403bs and IRAs are the same) is good to know. My tax people weren't sure about this, but it sure makes sense to me. It will help as I do more reading.

Again I wanted to chime in and affirm that @cathy63 knows what she's talking about. I would trust her information and advice far more than the Vanguard or OneAmerica CSRs.

My understanding is that 403(b)s and IRAs act generally the same. (There is one extraordinarily minor technical difference but it doesn't apply to anything in your situation so far so it's irrelevant to you.)

I will get ahold of Vanguard and ask to assume the account. It will be interesting to see if anyone I contact there knows what the heck I"m talking about (smile.) This would make it so much easier. A bigger hit when I have to take it in three years, of course, but at least then I can deal with only "mine."

You can point them to IRS Pub 590-B and tell them that you want to treat the account as your own:

"Inherited from spouse. If you inherit a traditional IRA from your spouse, you generally have the following three choices.
1. Treat it as your own IRA by designating yourself as the account owner;
2. Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a:
a. Qualified employer plan,
b. Qualified employee annuity plan (section 403(a)plan),
c. Tax-sheltered annuity plan (section 403(b) plan),
d. Deferred compensation plan of a state or local government (section 457 plan), or
3. Treat yourself as the beneficiary rather than treating the IRA as your own."

-- https://www.irs.gov/pub/irs-pdf/p590b.pdf page 5

I just don't understand why no one at either company bothered to explain my options. Why do they assume that we "peons" out here know the subtle differences of these procedures? Or that we have a clue as to what to ask? I know I should educate myself, but this vocabulary "assume" vs "inherit" is above my pay grade.

It goes back to what I wrote earlier. Vanguard and OneAmerica are *investment* firms, not *tax* firms. Vanguard and OneAmerica can tell you about topics like your different investment options, rates of return, investment risk, investment fees, asset allocations, and things like that. They are not experts on taxes, which would include topics like what your options are when inheriting an account, how to complete a 1040, etc.

They should understand "assume the account", "treat the account as my own", and "combine", or "roll over into my 403(b)" and all of those are synonymous.

 

[CindyBlue]

Thank you so much. You and cathy63 and my tax people all agree. Seems a I have to do is tell Vanguard the right language what I want to do, but I didn't know what the right words were.

Sure wish I'd come here before spending all those hours on the phone with Vanguard...sigh...

On Monday when I call Vanguard, I'm going to do exactly as you said...in fact, I'm printing this so I know what words to use.

 

[CindyBlue]

You can still try to get Vanguard to fix this account by merging it completely with yours. As I wrote previously, tell them you wanted to assume it and not keep it as an inherited account. If you can get them to change it to an assumed account then you do not need to take RMDs.

You do not need to do anything more with the OneAmerica account. You don't need to take RMDs from it. You don't need to speak to the IRS about it. OneAmerica did exactly the right thing with this account by making it an assumed account. Just leave this one alone until you turn 73. It doesn't matter at all that any of this money originally came from your DH.

Right now, it seems like you do have to take RMDs from the Vanguard account because they did the "keep as inherited account" method. You do not have to take RMDs from the OneAmerica account because they did the "Rollover the account into their own 403(b)" method. Please don't worry about whether it's an IRA. You can just replace "IRA" with "403(b)" everywhere you see it. The inheritance and withdrawal rules for the two accounts are exactly the same. IRAs are just much more common.

Thank you so much, cathy63. I will be on the phone (again!) with Vanguard on Monday, this time with the correct language to use, thanks to you. I appreciate your help so much.

 

[Badger]

CindyBlue, I am sorry you are going through all these issues at such a difficult time for you with your loss. I hope they will soon be corrected.
Although my wife and I have been taking RMDs for a few years now, I will be watching these posts. I am sure there are others that will have the same questions.
We are so fortunate to have such knowledgeable folks here like Cathy63.

 

[CindyBlue]

CindyBlue, I am sorry you are going through all these issues at such a difficult time for you with your loss. I hope they will soon be corrected.
Although my wife and I have been taking RMDs for a few years now, I will be watching these posts. I am sure there are others that will have the same questions.
We are so fortunate to have such knowledgeable folks here like Cathy63.

Thank you, Badger. It is still incomprehensible to me that he's not here with me. It hasn't sunk in. I just can't figure out how to face the rest of my life without him.

It hurts so much...

And you are right...I've gotten more information from the nice and knowledgeable folks here than in hours and hours of conversations with the companies and tax people I've called. I am very grateful for the time and effort they have put in to help me try to figure all of this out. I wish I'd thought to ask here on the FIRE Forum sooner.

I am in the process of trying to make an appointment to consult with with one more tax person, at the company that used to do my dad's taxes, and that helped me so much when I had to handle it all when dad got dementia and then passed away in 2021. I am reasonably sure they will confirm that cathy63 and SecondCor521 others have advised me to do. Hope to get that appointment for this coming week.

I hope that information gleaned from my situation can help you and others, too. It's a rotten thing to have to stress about at this time. I sure wish it were made more clear and that the IRS had more people available to consult.

 

[SecondCor521]

CindyBlue, I am sorry you are going through all these issues at such a difficult time for you with your loss. I hope they will soon be corrected.
Although my wife and I have been taking RMDs for a few years now, I will be watching these posts. I am sure there are others that will have the same questions.
We are so fortunate to have such knowledgeable folks here like Cathy63.

One unfortunate thing to understand is that the tax law is complicated in a number of areas and the answer given in one scenario might be vastly different than the answer giving in another scenario, even if the two seem similar.

RMDs have been an area of moderate complication for a while, and the Secure Acts have made RMDs even more complicated (IMHO). Considering the original owner and the beneficiary: the owner's age at death, the relative ages of the owner and the beneficiary, the relationship between them, the disability status of the beneficiary, the age of the beneficiary, and when the owner died all affect RMDs.

 

[CindyBlue]

One unfortunate thing to understand is that the tax law is complicated in a number of areas and the answer given in one scenario might be vastly different than the answer giving in another scenario, even if the two seem similar.

RMDs have been an area of moderate complication for a while, and the Secure Acts have made RMDs even more complicated (IMHO). Considering the original owner and the beneficiary: the owner's age at death, the relative ages of the owner and the beneficiary, the relationship between them, the disability status of the beneficiary, the age of the beneficiary, and when the owner died all affect RMDs.

Yes to all of that...sigh...