Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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 But WRERA did NOT change other RMD deadlines: The Beneficiary Finalization Date remains September 30 of the year after the year of the participant’s death ( ¶ 1.8.03 (A)). The date by which a see-through trust must deliver documentation to the plan administrator remains October 31 of the year after the year of the participant’s death ( ¶ 6.2.08 (A)). The date by which multiple beneficiaries must establish separate accounts for purposes of determining their Applicable Distribution Period (ADP; ¶ 1.2.03 ) remains December 31 of the year after the year of the participant’s death ( ¶ 1.8.01 (B)). The participant’s RBD remains April 1 of the year after the year in which he reaches age 70½ (or retires, whichever is applicable) for purposes of determining whether he died before or after his RBD ( ¶ 1.5.02 , Step 3), even if he reached age 70½ in 2008 or 2009.  Although in theory there were “no RMDs in 2009,” actually there were two types of RMDs that had to be paid, even in 2009. One was a 2008 RMD that was postponed until April 1, 2009 (2008 being the first distribution year); see ¶ 1.4.09 (A). The other was a skipped RMD from any year earlier than 2009. See ¶ 1.9.02 and Notice 2009-82 , Part V, A-8.  Despite WRERA’s suspension of RMDs, some plans distributed 2009 “required” distributions anyway. The IRS granted participants and surviving spouses (but not other beneficiaries) who received these “nonrequired required distributions” the right to roll them over within 60 days of receipt (or by November 1, 2009, if later); see the Special Report: Ancient History ( Appendix C ). 1.1.05 RMDs under defined plans, “annuitized” DC plans Defined benefit plans are subject to an entirely different system of RMDs than the defined contribution (DC) plan system explained in this Chapter. For details on the defined benefit plan RMD system, see Chapter 10 . Advisors need to be aware of this alternative RMD system even if they have nothing to do with RMD compliance for any defined benefit plan because the defined benefit plan system also applies to any portion of a DC plan that is “annuitized.” Annuitize is a word that does not appear in the dictionary; in the IRS lexicon, it means that all or part of an individual’s account in a DC plan is used to purchase an immediate annuity. For example, suppose a participant wants to use part of his IRA balance to purchase an immediate annuity from an insurance company, i.e., he wants to convert that money into a stream of periodic payments that the insurer guarantees will last for some specified period of time or for specified lives. In exchange for that promise the participant gives up his ownership of the money turned over to the insurance company. The IRA owner has two choices regarding how to use his IRA money to buy an immediate annuity. He can cash out the IRA, pay the resulting income tax, and then buy whatever kind of annuity contract he wants (and can get an insurer to sell). Or he can buy the contract “inside” the IRA. If he chooses the latter course, then the defined benefit plan RMD rules step in. These rules limit what types of annuity contract he can buy and how the contract (and the rest of the IRA) will  For the effect on individuals who turned age 70½ in 2008 or 2009, see ¶ 1.4.09 .