Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

fractional portion of the account of which the spouse is the beneficiary if she is not sole beneficiary of the participant’s entire account in the plan. Reg. § 1.401(a)(9)-8 , A-2(a)(2). 1.4 The RBD and First Distribution Year Computing lifetime RMDs (¶ 1.3) is much easier than figuring out when they start. This ¶ 1.4 explains what the “RBD” and “first Distribution Year” are for various types of retirement plans and looks at the anomalies created by the disconnect between the first Distribution Year and the RBD ( ¶ 1.4.07 ). 1.4.01 Required Beginning Date (RBD); Distribution Year A year for which an RMD is required is called a “distribution calendar year” in the regulations (Reg. § 1.401(a)(9)-5 , A-1(b)), a Distribution Year in this book. For plans subject to the lifetime RMD rules ( ¶ 1.1.02 ), the “first Distribution Year” is the year the participant reaches age 70½ (or, in some cases, retires, if later; see ¶ 1.4.04 , ¶ 1.4.05 ). However, if the participant reached age 70½ (or retired, if later) in 2008 or 2009, see ¶ 1.4.09 . See ¶ 1.2.06 (C) for the effect of rollovers and IRA-to-IRA transfers. Normally, the deadline for taking the RMD for a particular Distribution Year is December 31 of such year ( ¶ 1.2.01 , #2), but, for lifetime distributions only, in the case of the first Distribution Year, the deadline is April 1 of the following year. Reg. § 1.401(a)(9)-5 , A-1(c). That postponed deadline for the first year’s RMD is called the Required Beginning Date or RBD . § 401(a)(9)(C) . This postponement of the RMD for the first year does not apply to death benefits (¶ 1.5) . The RBD matters mainly for compliance purposes: The participant must start taking RMDs by that date to avoid penalty ( ¶ 1.9.02 ). Also, the calculation of post-death RMDs is different depending on whether death occurred before or after the RBD; see ¶ 1.5.02 , Step 3. The RBD has little significance for planning purposes. The starting point for determining the RBD is the attainment of age 70½, which is “the date six calendar months after the 70th anniversary of the employee’s birth.” Reg. § 1.401(a)(9)-2 , A- 3. 1.4.02 RBD for IRAs and Roth IRAs The RBD for a traditional IRA is April 1 of the calendar year following the year in which the participant reaches age 70½, regardless of whether he is “retired.” § 408(a)(6) , § 401(a)(9)(C)(i)(I) , (ii)(II) . Exceptions: For participants who turned age 70½ in 2009, see ¶ 1.4.09 (B); for certain rollover contributions, see ¶ 1.2.06 (C). Roth IRAs have no RBD. The participant is never compelled to take distributions from his Roth IRA. Minimum distribution requirements do not apply to a Roth IRA until after the participant’s death. See ¶ 5.2.02 . 1.4.03 QRPs: RBD for 5-percent owner For a participant who is a “5-percent owner,” the RBD for a QRP is the same as the RBD for a traditional IRA ( ¶ 1.4.02 ): April 1 of the calendar year following the year in which the