Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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This section explains the rules for participants who are taking lifetime RMDs from more than one retirement plan. For rules applicable to beneficiaries taking distributions from inherited plans, see ¶ 1.5.09 instead. If the participant has benefits in more than one qualified retirement plan (QRP), the RMD must be calculated separately for each such plan, and each such plan must distribute the RMD calculated for that plan. Reg. § 1.401(a)(9)-8 , A-1. Thus if he participates in two pension plans and a 401(k) plan, he will receive three separate RMDs (even if all the plans are provided by the same employer). A different rule applies for IRAs. The RMD must be calculated separately for each IRA, but (with exceptions noted below) the participant is not required to take each IRA’s calculated amount from that IRA. He can total up the RMDs required from all of his IRAs and then take the total amount from one of the IRAs or from any combination of them. Reg. § 1.408-8 , A-9. For purposes of this rule, all traditional IRAs—whether contributory, rollover, SIMPLE, or SEP—are treated the same; they may all be aggregated with each other. However, Roth IRAs may not be aggregated with any type of traditional IRA for this purpose; see ¶ 5.2.02 (C). This optional aggregation rule applies also to 403(b) accounts. The RMD must be calculated separately for each 403(b) account, but (with exceptions noted below) the participant is not required to take each 403(b) account’s calculated amount from that 403(b) account. He can total up the RMDs required from all of his 403(b) arrangements, and then take the total amount all from one of them or from any combination of them. Reg. § 1.403(b)-6(e)(7) . Note that IRAs may be aggregated only with other IRAs, and 403(b)s may be aggregated only with other 403(b)s. Now for the exceptions: An individual’s IRAs held as owner may not be aggregated with IRAs he holds as beneficiary ; an individual’s 403(b) plans held as employee may not be aggregated with such individual’s 403(b) plans held as beneficiary ; and an individual’s IRAs (or 403(b) plans) held as beneficiary of one decedent may not be aggregated with IRAs (or 403(b) plans) held as beneficiary of another decedent. Regs. § 1.408-8 , A-9; § 1.403(b)-6(e)(7) . Also, if any part of an IRA or 403(b) account has been “annuitized” (converted to an immediate annuity), the annuitized portion becomes subject to the defined benefit plan RMD rules and cannot be aggregated with amounts governed by the DC plan rules; see ¶ 1.1.05 . 1.3.05 Separate accounts within a single plan A QRP may maintain multiple accounts for a particular employee on the plan books, for example a rollover account, an employer contribution account, and an employee contribution account. These multiple accounts within a single QRP are treated as one account for RMD purposes during the employee’s life. Reg. § 1.401(a)(9)-8 , A-2(a). This rule is favorable to the employee, because he can withdraw his RMDs from his employee contribution account (which may contain after-tax dollars) first; see ¶ 1.2.02 (D). Though a single IRA payable to multiple beneficiaries can be divided into “separate accounts” (each payable to a different beneficiary) for RMD purposes after the owner’s death ( ¶ 1.8.01 ), separate accounts treatment is not available for RMD purposes during the participant’s life. Thus, it is not possible to use the much-younger-spouse method to calculate the RMD for the

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