Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

In this book, Required Commencement Date means the deadline by which a beneficiary must start taking distributions.

Overview of the post-death RMD rules

The concept of the post-death RMD rules is simple: The participant’s retirement benefits can be depleted gradually through annual distributions (beginning the year after the year of the participant’s death) over the life expectancy of the participant’s “Designated Beneficiary.” ¶ 1.5.05 . This is popularly called the “ life expectancy ” (or “ stretch ”) payout method and is generally considered a favorable way to distribute benefits, for reasons explained at ¶ 1.1.03 . Alternatively, as is always true under the minimum distribution rules, the account can be depleted by any more rapid schedule of distributions; see ¶ 1.2.01 , #4. A. Not every beneficiary is a Designated Beneficiary. Different rules apply to Designated Beneficiaries than apply to other beneficiaries. Only individuals and “see-through trusts” ( ¶ 6.2.03 ) can be Designated Beneficiaries. So, after you ascertain who the participant’s beneficiary is ( ¶ 1.7.02 ), you must determine whether the beneficiary is a Designated Beneficiary ( ¶ 1.7.03 ). Adding to the fun, not every person or entity who is a beneficiary of the account as of the participant’s date of death “counts” in this determination; see ¶ 1.8.03 for how beneficiaries can be “removed” from the pool after the participant’s death. B. If there are multiple beneficiaries : The determination of whether the life expectancy payout method is available to any or all of them, and if so whose life expectancy is the ADP, depends on the IRS’s “multiple beneficiaries” and “separate accounts” rules. See ¶ 1.7.05 , ¶ 1.8.01 . C. RMDs are calculated one way if the sole Designated Beneficiary is the participant’s surviving spouse ( ¶ 1.6.03 ), and an entirely different way if the Designated Beneficiary is any other individual ( ¶ 1.5.05 ). This difference even extends after the beneficiary later dies; see ¶ 1.6.03 (E) and ¶ 1.6.05 (C) regarding distributions after the death of a surviving spouse-sole beneficiary, ¶ 1.5.13 regarding RMDs after the death of any other individual beneficiary. The surviving spouse also gets one other special tax deal nobody else gets— the ability to roll over the inherited benefits to her own retirement plan; see ¶ 3.2 for details of the spousal rollover (which is not a minimum distribution rule). D. When is the first RMD? Though RMDs normally begin the year after the year of the participant’s death (or sometimes even later if the surviving spouse is the sole beneficiary), an RMD may also be required for the year of death itself if the participant died after his RBD. See ¶ 1.5.04 (A). E. If the benefits are not left to a Designated Beneficiary: The life expectancy of the beneficiary (“stretch”) payout method is not available, and the “no-designated- beneficiary” (no-DB) rules apply instead…and these rules differ depending on whether As we will see, this simple concept gets complicated in its application because: