Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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“distributions under a designation (before January 1, 1984) by any employee in accordance with a designation described in section 242(b)(2) of [TEFRA] (as in effect before the amendments made by this Act).” TRA ’84, § 521(d)(2)-5. To avoid the impact of TEFRA, there was a flurry of activity among sophisticated plan participants trying to make a “designation” by December 31, 1983 that would enable them to continue to use the older, more liberal rules. Participants with valid TEFRA 242(b) elections can postpone the start of RMDs past age 70½, until retirement (even if they own more than 5 percent of the employer), and their death benefits are not subject to the “5-year rule” ( ¶ 1.5.06 ) or the “at- least-as-rapidly” rule ( ¶ 1.5.04 ). For the requirements of a valid TEFRA 242(b) election see Notice 83-23, 1983-2 C.B. 418, and Reg. § 1.401(a)(9)-8 , A-13–A-16. For more detail regarding TEFRA 242(b) elections see the Special Report: Ancient History ( Appendix C ). 1.4.09 Effect of 2009 one-year suspension of RMDs This section explains how the one-year suspension of RMDs in 2009 ( ¶ 1.1.04 ) affected participants whose first distribution year was 2008 or 2009 and whose RBD therefore fell in 2009 or 2010. A. First distribution year was 2008, RBD was in 2009 . A participant who attained age 70½ (or retired, whichever is applicable) in 2008, but postponed taking his 2008 RMD until 2009 ( ¶ 1.4.01 ), still had to take his 2008 RMD by April 1, 2009. Notice 2009-9 , 2009-5 IRB 419. B. First distribution year was 2009, RBD was in 2010. An individual who turned 70½ (or retired, whichever was applicable) in 2009 (so 2009 was his “first Distribution Year”) did not have to take his 2009 RMD until April 1, 2010. Notice 2009-9 made it clear that this individual was excused from taking the 2009 distribution: “The 2009 RMD waiver under the Act does apply to individuals who may be eligible to postpone taking their 2009 RMD until April 1, 2010 ....” Emphasis added. But even though no distribution had to be taken by that date, April 1, 2010, is still considered to be such person’s RBD for purposes of applying the post-death RMD rules (see ¶ 1.5.02 , Step 3) and for purposes of the deadline for the 2010 RMD ( i.e., it is 12/31/10, not 4/1/11). The RBD “with respect to any individual shall be determined without regard to” the one-year suspension of RMDs in 2009 for purposes of applying § 401(a)(9) for years after 2009. § 401(a)(9)(H)(ii)(I) . 1.5 RMDs after the Participant’s Death After the participant’s death, the minimum distribution rules apply to the beneficiary. The post-death RMD rules are more complicated than the lifetime RMD rules. The good news is there are only four possible post-death payout methods: life expectancy of the surviving spouse, life expectancy of a nonspouse beneficiary, life expectancy of the participant, and the 5-year rule. What gets complicated is trying to figure out which one applies to your particular beneficiary and the particular plan he, she, or it inherited.