Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Annual RMDs are determined by dividing the prior year-end account balance by a life expectancy factor (from an IRS table) called the Applicable Distribution Period (ADP) or divisor. The term “ADP” is used to mean both, particularly, the numerical factor used as a divisor in computing the RMD for a particular year ( ¶ 1.2.01 , #3) (as in “look up the ADP for age 78 in the Uniform Lifetime Table”) and, more generally, the payout period that will apply to a particular participant or beneficiary (as in “the ADP is the oldest beneficiary’s life expectancy”; ¶ 1.7.05 (B)). There are currently three tables in use for purposes of computing RMDs. All three tables are reproduced in full in IRS Publication 590-B (2015), “Distributions from Individual Retirement Arrangements.” All three tables are “unisex” (life expectancy for men and women is the same). Lifetime RMDs ( ¶ 1.3 ) are calculated using either the Uniform Lifetime Table ( ¶ 1.3.02 ) or (if the participant’s sole beneficiary is his more-than-10-years-younger spouse) the Joint and Last Survivor Table . ¶ 1.3.03 . The Uniform Lifetime Table is found at Reg. § 1.401(a)(9)-9 , A- 2, and in Appendix A of this book. The Joint and Last Survivor Table is found at Reg. § 1.401(a)(9)-9 , A-3 (not reproduced in this book). Post-death RMDs based on the life expectancy of the surviving spouse ( ¶ 1.6.03 (C), (D)); of a nonspouse Designated Beneficiary ( ¶ 1.5.05 ); or of the deceased participant ( ¶ 1.5.08 ); are calculated using the Single Life Table . The only post-death RMDs not governed by the Single Life Table are the RMD for the year of the participant’s death ( ¶ 1.5.04 (A)) and distributions under the 5-year rule ( ¶ 1.5.06 ). The Single Life Table is found at Reg. § 1.401(a)(9)-9 , A-1, and in Appendix A of this book. The IRS uses a different set of actuarial tables for estate and gift tax valuations; see § 7520 . The estate and gift tax actuarial tables must be updated at least every 10 years. § 7520(c)(2) . The 2009 updates to the transfer tax actuarial tables have no effect on the calculation of RMDs. The tables used to calculate RMDs were last updated in 2002. T.D. 8987, 67 FR 18987. They may be updated from time to time by the IRS. Reg. § 1.401(a)(9)-9 , A-4.

Meaning of “age”, “methods of computing “life expectancy”

To obtain the ADP or divisor ( ¶ 1.2.03 ) from the IRS tables, you need to know the participant’s or beneficiary’s age and how to use the life-expectancy tables.

Age for RMD purposes means the age the person will attain on his birthday in the applicable Distribution Year; it is the age he will be at the end of the Distribution Year. Reg. § 1.401(a)(9)-5 , A-4(a), (b); A-5(c). The tricky part is that for some RMDs the age is determined only once, at the beginning of the payout period; this is popularly known as the “fixed-term” or “reduce-by-one” method. For other RMDs, the age is redetermined annually (“recalculation method”). The participant or beneficiary has no choice in this matter—the regulations dictate which method applies in which situation.