Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Computing lifetime RMDs ( ¶ 1.3 ) is much easier than figuring out when they start. This ¶ 1.4 explains what the “RBD” and “first Distribution Year” are for various types of retirement plans and looks at the anomalies created by the disconnect between the first Distribution Year and the RBD ( ¶ 1.4.07 ).

Required Beginning Date (RBD); Distribution Year

A year for which an RMD is required is called a “distribution calendar year” in the regulations (Reg. § 1.401(a)(9)-5 , A-1(b)), a Distribution Year in this book. For plans subject to the lifetime RMD rules ( ¶ 1.1.02 ), the “first Distribution Year” is the year the participant reaches age 70½ (or, in some cases, retires, if later; see ¶ 1.4.02 – ¶ 1.4.05 ). Reg. § 1.401(a)(9)-5 , A-1(b), second and third sentences.

See ¶ 1.2.06 (C) for the effect of rollovers and IRA-to-IRA transfers on determination of the first Distribution Year.

Normally, the deadline for taking the RMD for a particular Distribution Year is December 31 of such year ( ¶ 1.2.01 , #2), but, for lifetime distributions only, in the case of the first Distribution Year, the deadline is April 1 of the following year. Reg. § 1.401(a)(9)-5 , A-1(c). That postponed deadline for the first year’s RMD is called the Required Beginning Date or RBD . § 401(a)(9)(C) ; § 408(a)(6) ; Reg. § 1.408-8 , A-3. This postponement of the RMD for the first Distribution Year does not apply to death benefits ( ¶ 1.5 ). The RBD matters mainly for compliance purposes: The participant must start taking RMDs by that date to avoid penalty ( ¶ 1.9.02 ). Also, the calculation of post-death RMDs is different depending on whether death occurred before or after the RBD; see ¶ 1.5.02 , Step 3. The RBD has little significance for planning purposes. The starting point for determining the RBD is the attainment of age 70½. The “½” year is determined by months (six calendar months) not days (183.5 days): “An employee attains age 70½ as of the date six calendar months after the 70th anniversary of the employee’s birth. For example, if an employee’s date of birth was June 30, 1933, the 70th anniversary of such employee’s birth is June 30, 2003. Such employee attains age 70½ on December 30, 2003. ...However, if the employee’s date of birth was July 1, 1933, the 70th anniversary of such employee’s birth would be July 1, 2003. Such employee would then attain age 70½ on January 1, 2004....” Reg. § 1.401(a)(9)-2 , A-3. If the participant’s date of birth is December 31, 1947, it is not clear whether he attains age 70½ on June 30, 2018, or July 1, 2018, but it doesn’t matter because either way he attains age 70½ in 2018 so his RBD will be April 1, 2019.

RBD for IRAs and Roth IRAs