Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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A. Recalculation method. The recalculation method applies for purposes of computing all lifetime RMDs ( ¶ 1.3.02 ), including the RMD for the year of the participant’s death if any ( ¶ 1.5.04 (A)), and post-death RMDs when the surviving spouse is the sole beneficiary ( ¶ 1.6.03 (D)). Under the recalculation method, the individual’s age is redetermined each year, and the ADP used is the divisor applicable to the new age, instead of just deducting one from last year’s divisor. Under the recalculation method, life expectancy never runs out as long as the distributee is alive: See “Kenny Example” ( ¶ 1.3.01 ); ¶ 1.3.02 ; and “Josephine Example” ( ¶ 1.6.03 (D)). B. Fixed-term method. Under the “fixed-term method,” you determine the beneficiary’s age and the corresponding ADP in the year after the year of the participant’s death. Then in subsequent Distribution Years the divisor is simply the prior year’s divisor reduced by one. Reg. § 1.401(a)(9)-5 , A-5(c)(1). Some call this the “ reduce-by-one method .” Unlike with the recalculation method, you do not revise the ADP annually based on the beneficiary’s new age. See Diane Example at ¶ 1.5.05 (A). The fixed-term method is used to determine RMDs after the participant’s death when RMDs are based on the beneficiary’s life expectancy, unless the surviving spouse is the sole designated beneficiary ( ¶ 1.6.03 (D)). For when post-death RMDs are not based on the beneficiary’s life expectancy see ¶ 1.5.04 (A) and ¶ 1.5.06 – ¶ 1.5.08 . The fixed-term method is never used to calculate RMDs during the participant’s lifetime. Each year, the RMD is determined by dividing the prior year-end account balance by the ADP. This section explains which account balance you use and what adjustments are required. See ¶ 1.2.08 for how to value the account balance. In the case of a qualified retirement plan (QRP), the account balance to use is “the account balance as of the last valuation date in the calendar year immediately preceding” the Distribution Year. Reg. § 1.401(a)(9)-5 , A-3(a). The regulation provides certain adjustments for contributions and distributions. The account balance excludes the value of any Qualified Longevity Annuity Contract (QLAC) ( ¶ 1.1.05 ). Generally, any immediate annuity within the plan account is treated as a separate retirement plan for minimum distribution purposes and not included in the account balance; see ¶ 1.1.05 . How to determine “account balance” for RMD purposes

Reg. § 1.408-8 , A-6, provides that the account balance for an IRA is to be determined in the same manner as provided for qualified plans except as follows:

 Instead of “the last valuation date,” the relevant date is “as of December 31 of the calendar year immediately preceding the calendar year for which distributions are required to be made.” excluding the value of any QLAC, subject to the following adjustments. Reg. § 1.408-8 , A-6.

 Unlike with qualified plans, no adjustments are made for contributions and distributions except as follows.