Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

1.3 RMDs During Participant’s Life The minimum distribution rules come in two flavors, “life” and “death.” This ¶ 1.3 and ¶ 1.4 explain the “life” rules, the rules that apply during the participant’s life. For the post-death rules see ¶ 1.5 – ¶ 1.8 . An individual (the participant ) who owns a retirement plan account must start taking annual “required minimum distributions” RMDs) at a certain point in his life. This general statement does not apply to Roth IRAs, which are not subject to the lifetime distribution requirement; see ¶ 5.2.02 (A). Accordingly, this ¶ 1.3 does not apply to Roth IRAs. Also, see ¶ 1.1.04 regarding the 2009 one-year suspension of RMDs. For when lifetime RMDs must start, see ¶ 1.4. Once commenced, annual RMDs continue for the rest of the participant’s life; for this rule and its exceptions, see ¶ 1.2.01 , #2. Although the computation of post-death RMD s can be radically different depending who is the beneficiary of the plan (see ¶ 1.5 ), lifetime RMDs are computed the same way for most people. See ¶ 1.3.01 for the method most people use (and the list of people who do not use it). 1.3.01 Road Map: How to compute lifetime RMDs Follow Steps 1–8 below to compute a participant’s “lifetime” RMD for a particular year (the “Distribution Year”) for a qualified retirement plan (QRP) or 403(b) plan account or traditional IRA. Reg. § 1.401(a)(9)-5 , A-4(a). This calculation must be done separately for EACH IRA or plan account the participant owns; see ¶ 1.3.04 . As a reminder, this method does not apply to defined benefit plans or to the “annuitized” portion of any DC plan; see ¶ 1.1.05 . Step 1: Determine whether a distribution is required for this year. If the participant has not yet reached his “first Distribution Year” ( ¶ 1.4.01 ), you’re done—no RMD is required. For the first Distribution Year itself, see ¶ 1.4.07 . If the participant has passed his RBD, a distribution is required. If a distribution is required for the year, proceed to Steps 2–8. Determine the prior year-end account balance for this plan or IRA. See ¶ 1.2.05 – ¶ 1.2.08 . Step 2: Obtain the ADP (divisor) from the Uniform Lifetime Table ( ¶ 1.2.03 ) for the participant’s age (Step 3), unless the sole beneficiary of the account is the participant’s more-than-10-years-younger spouse (in which case see ¶ 1.3.03 for where to find the divisor). Compute the current Distribution Year’s RMD by dividing the prior year-end account balance (Step 2) by the ADP (Step 4). If the current Distribution Year is 2009 , reduce the amount obtained in Step 5 to zero. See ¶ 1.1.04 . Add any missed RMDs from prior years to the amount obtained in Steps 1–6. See ¶ 1.9.02 . Step 5: Step 6: Step 7: Step 3: Step 4: Determine the participant’s age. See ¶ 1.2.04 .