Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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but (B) which would not have disqualified such [plan] under [ § 401(a)(9) ] as in effect before the amendment” made by TEFRA. TRA ’84 (which made more changes) continued the TEFRA grandfather rule: The TRA ’84 changes would not apply to “distributions under a designation (before January 1, 1984) by any employee in accordance with a designation described in section 242(b)(2) of [TEFRA] (as in effect before the amendments made by this Act).” TRA ’84, § 521(d)(2)-5. To avoid the impact of TEFRA, there was a flurry of activity among sophisticated plan participants trying to make a “designation” by December 31, 1983 that would enable them to continue to use the older, more liberal rules. Participants with valid TEFRA 242(b) elections can postpone the start of RMDs past age 70½, until retirement (even if they own more than 5 percent of the employer), and their death benefits are not subject to the “ 5-year rule” ( ¶ 1.5.06 ) or the “at- least-as-rapidly” rule ( ¶ 1.5.04 ). For the requirements of a valid TEFRA 242(b) election see Notice 83-23, 1983-2 CB 418, and Reg. § 1.401(a)(9)-8 , A-13–A-16. For more detail regarding TEFRA 242(b) elections see the Special Report: Ancient History ( http://www.ataxplan.com ). The good news is there are only four possible post-death payout methods: life expectancy of the surviving spouse, life expectancy of a nonspouse beneficiary, life expectancy of the participant, and the 5-year rule. What gets complicated is trying to figure out which one applies to your particular beneficiary and the particular plan he, she, or it inherited. This ¶ 1.5 covers only the post-2002 RMD rules applicable to defined contribution (DC) or “individual account” plans. Regarding defined benefit plans or annuity payouts, see ¶ 1.1.05 . Regarding earlier years, see ¶ 1.1.01 . Post-death RMDs after 2002 are determined under the final regulations ( ¶ 1.1.01 ) even if the participant died before 2002. When determining RMDs from the account of a participant who died prior to 2002, “the designated beneficiary must be redetermined....and the applicable distribution period…must be reconstructed” in accordance with the post-2002 rules. Reg. § 1.401(a)(9)-1 , A-2(b)(1). 1.5 RMDs after the Participant’s Death After the participant’s death, the minimum distribution rules apply to the beneficiary of the retirement account. The post-death RMD rules are more complicated than the lifetime RMD rules.

Instead of this ¶ 1.5 , see ¶ 1.4.08 for benefits subject to a “TEFRA 242(b) election,” or ¶ 1.4.05 for pre-1987 403(b) plan balances.

In the Code, “required beginning date” refers only to the starting date for lifetime distributions to the participant ( ¶ 1.4 ). The date by which post-death distributions to the beneficiary must begin does not have an official name; compare § 401(a)(9)(A) and (C) with § 401(a)(9)(B) .