Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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of distribution to the participant qualifies provided that it is projected either to distribute all the benefits over the lifetimes of the participant and his spouse-beneficiary or to distribute at least 50 percent of the benefits during the participant’s life. Reg. § 1.403(b)- 6(e)(6)(vi) ; Rev. Rul. 72-240, 1972-1 CB 108; Rev. Rul. 72-241, 1972-1 CB 108.  There are no requirements for how rapidly benefits must be distributed after the participant’s death if the participant dies before commencing distributions. The pre-1987 grandfather amount is a frozen, fixed-dollar amount; investment earnings and gains do not increase the grandfathered balance. Reg. § 1.403(b)-6(e)(6)(i) . With the passage of time, new contributions to the plan and investment growth tend to make the pre-1987 balance an ever-smaller percentage of the overall plan balance, so in most cases it is not a significant planning factor. Also, any distributions taken from the plan that are in excess of the RMDs from the post-1986 balance are deemed to come first out of the pre-1987 balance. Reg. § 1.403(b)- 6(e)(6)(iii) . For more on the 403(b) grandfather rule, see the Special Report: Ancient History ( http://www.ataxplan.com ). When planning for an employee whose RBD is based on “retirement” rather than on attaining age 70½, remember that her first “Distribution Year” will be the year the retirement occurs— and that no rollover can be allowed in that year until after the RMD has been distributed . See ¶ 2.6.03 . The meaning of “the calendar year in which the employee retires” (see ¶ 1.4.04 , ¶ 1.4.05 ) is not always obvious, because the meaning of “retires” has never been articulated by the IRS or any court. A. Retirement from employer maintaining the plan. We do know that “retirement” means retirement “from employment with the employer maintaining the plan .” Reg. § 1.401(a)(9)-2 , A-2(a); Reg. § 1.403(b)-6(e)(3) . Emphasis added. Arch Example: Arch, age 73, works at Acme Co. Arch has never been a 5-percent owner of Acme. He is a participant in the Acme Plan. This plan holds funds contributed to Arch’s account by Acme as well as funds rolled over into this plan from the retirement plan of Arch’s prior employer, Zenith, and funds rolled over from an IRA. Even though the funds in Arch’s accounts in the Acme Plan partly represent funds from an IRA (which, if they were still held in an IRA, would not be eligible for the postponed RBD), and from the plan of a former employer (from whose employment Arch has “retired”), Acme is “the employer maintaining the plan” that now holds these funds, and accordingly Arch is not required to take any distributions from any part of the Acme Plan until April 1 following the year in which he retires from Acme. The question of what is “retirement” for purposes of a 403(b) plan has been a source of contention among participants, schools, and the IRS. Professor Mark has worked at 10 different universities over his career, with each university contributing to his TIAA-CREF accounts and What “retires” means; rollover in retirement year