Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

The special RMD valuation rule for annuities may NOT be used to value a contract for purposes of a Roth IRA conversion; Reg. § 1.408A-4 , A-14; and it applies only to annuity contracts that have not been “annuitized” (see ¶ 1.1.05 ).

1.3 RMDs During Participant’s Life

This ¶ 1.3 and ¶ 1.4 explain the minimum distribution rules that apply during the participant’s life. For the rules that apply after the participant’s death see ¶ 1.5 – ¶ 1.8 .

An individual (the participant ) who owns a retirement plan account generally must start taking annual “required minimum distributions” (RMDs) from that account at a certain point in his life. The exception: Roth IRAs are not subject to the lifetime distribution requirement; see ¶ 5.2.02 (A). For when lifetime RMDs must start, see ¶ 1.4 . Once commenced, annual RMDs continue for the rest of the participant’s life; for this rule and its exceptions, see ¶ 1.2.01 , #2. Although the computation of post-death RMDs can be radically different depending who is the beneficiary of the plan (see ¶ 1.5 ), lifetime RMDs are computed the same way for most people. See ¶ 1.3.01 for the method most people use (and the list of people who do not use it). Follow Steps 1–7 below to compute a participant’s “lifetime” RMD for a particular year (the “Distribution Year”) from a qualified retirement plan (QRP), 403(b) plan account, or traditional IRA. Reg. § 1.401(a)(9)-5 , A-4. This calculation must be done separately for each IRA or plan the participant owns; see ¶ 1.3.04 . As a reminder, this method does not apply to defined benefit plans or to the “annuitized” portion of any defined contribution plan; see ¶ 1.1.05 . Determine whether a distribution is required for this year. If the participant has not yet reached his “first Distribution Year” ( ¶ 1.4.01 ), you’re done—no RMD is required. For the first Distribution Year itself, see ¶ 1.4.07 . If the participant has passed his RBD, a distribution is required. If a distribution is required for the year, proceed to Steps 2–7. Step 1: Road Map: How to compute lifetime RMDs

Determine the prior year-end account balance for this plan or IRA. See ¶ 1.2.05 – ¶ 1.2.08 .

Step 2:

Determine the participant’s age. See ¶ 1.2.04 .

Step 3:

Obtain the Applicable Distribution Period (ADP or divisor) from the Uniform Lifetime Table ( ¶ 1.2.03 ) for the participant’s age (Step 3)—unless the sole beneficiary of the account is the participant’s more-than-10-years-younger spouse (in which case see ¶ 1.3.03 for where to find the divisor).

Step 4: