Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Last Survivor Table . ¶ 1.3.03 . The Uniform Lifetime Table is found at Reg. § 1.401(a)(9)-9 , A- 2, and in Appendix A of this book (p. 423). The Joint and Last Survivor Table is found at Reg. § 1.401(a)(9)-9 , A-3 (not reproduced in this book). Post-death RMDs based on the life expectancy of the surviving spouse ( ¶ 1.6.03 (C), (D)); of a nonspouse Designated Beneficiary ( ¶ 1.5.05 ); or of the deceased participant ( ¶ 1.5.08 ); are calculated using the Single Life Table. The only post-death RMDs not governed by the Single Life Table are the RMD for the year of the participant’s death ( ¶ 1.5.04 (A)) and distributions under the 5-year rule ( ¶ 1.5.06 ). The Single Life Table is found at Reg. § 1.401(a)(9)-9 , A-1, and in Appendix A of this book (p. 423). The IRS uses a different set of actuarial tables for estate and gift tax valuations; see § 7520 . The estate and gift tax actuarial tables must be updated at least every 10 years. § 7520(c)(3) . The 2009 updates to the transfer tax actuarial tables have no effect on the calculation of RMDs. The tables used to calculate RMDs were last updated in 2002. T.D. 8987, 67 FR 18987. They may be updated from time to time by the IRS. Reg. § 1.401(a)(9)-9 , A-4. 1.2.04 What is a person’s “age” for RMD purposes? To obtain the ADP or divisor ( ¶ 1.2.03 ) from the IRS tables, you need to know the participant’s or beneficiary’s age. Age for RMD purposes means the age the person will attain on his birthday in the applicable Distribution Year; it is the age he will be at the end of the Distribution Year. Reg. § 1.401(a)(9)-5 , A-4(a), (b); A-5(c). The tricky part is that for some RMDs the age is determined only once, at the beginning of the payout period; this is called the “fixed-term” or “reduce-by-one” method. For other RMDs, the age is redetermined annually (“recalculation method”). The participant or beneficiary has no choice in this matter—the regulations dictate which method applies in which situation. A. Recalculation method. The recalculation method applies for purposes of computing all lifetime RMDs (¶ 1.3) , including the RMD for the year of the participant’s death if any ( ¶ 1.5.04 (A)), and post-death RMDs when the surviving spouse is the sole beneficiary ( ¶ 1.6.03 (D)). Under the recalculation method, the individual’s age is redetermined each year, and the ADP used is the divisor applicable to the new age, instead of just deducting one from last year’s divisor. Under the recalculation method, life expectancy never runs out as long as the distributee is alive: See “Kenny Example” ( ¶ 1.3.01 ); ¶ 1.3.02 ; and “Josephine Example” ( ¶ 1.6.03 (D)). B. Fixed-term method. Under the “fixed-term method,” you determine the person’s age and the corresponding ADP in the first Distribution Year. In subsequent Distribution Years, the divisor is simply the prior year’s divisor reduced by one; see Diane Example at ¶ 1.5.05 (A). Some call this the “ reduce-by-one method .” Unlike with the recalculation method, you do not determine a new ADP each year based on the person’s new age. With two exceptions, the fixed-term method is always used after the participant’s death to determine RMDs to the beneficiary. The two exceptions are: the RMD for the year of the participant’s death ( ¶ 1.5.04 (A)); and RMDs during the surviving spouse’s life, if she is the participant’s sole beneficiary ( ¶ 1.6.03 (D)). The fixed-term method is never used to calculate RMDs during the participant’s lifetime.