Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

This ¶ 1.5 covers only the post-2002 RMD rules applicable to defined contribution (DC) or “individual account” plans. Regarding defined benefit plans or annuity payouts, see ¶ 1.1.05 . Regarding earlier years, see ¶ 1.1.01 . Instead of this ¶ 1.5 , see ¶ 1.4.08 for benefits subject to a “TEFRA 242(b) election,” or ¶ 1.4.05 for pre-1987 403(b) plan balances. 1.5.01 Post-death RMD rules: Basics and overview Post-death RMDs after 2002 are determined under the final regulations ( ¶ 1.1.01 ) regardless of when the participant died . When determining RMDs from the account of a participant who died prior to 2002, “the designated beneficiary must be redetermined....and the applicable distribution period ...must be reconstructed” in accordance with the post-2002 rules described here. Reg. § 1.401(a)(9)-1 , A-2(b)(1). In the Code, “required beginning date” refers only to the starting date for lifetime distributions to the participant ( ¶ 1.4 ). The date by which post-death distributions to the beneficiary must begin does not have an official name; compare § 401(a)(9)(A) and (C) with § 401(a)(9)(B) . In this book, Required Commencement Date means the deadline by which a beneficiary must start taking distributions. The basic concept of the post-death RMD rules is simple: The participant’s retirement benefits can be depleted gradually through annual distributions (beginning the year after the year of the participant’s death) over the life expectancy of the participant’s “Designated Beneficiary.” ¶ 1.5.05 . This is called the “ life expectancy ” (or “ stretch ”) payout method and is generally considered a favorable way to distribute benefits, for reasons explained at ¶ 1.1.03 . Alternatively, as is always true under the minimum distribution rules, the account can be depleted by any more rapid schedule of distributions; see ¶ 1.2.01 , #4. As we will see, this simple concept gets complicated in its application. 1.5.02 Road Map for determining post-death RMDs To calculate required minimum distributions RMDs) after the participant’s death, START HERE and complete Steps 1 through 6. The chart at Step 7 will then tell you how to compute RMDs for your particular beneficiary, decedent, and plan. However, the plan is not required to allow all the payout options that the tax law permits; see ¶ 1.5.10 . For “double deaths” (the participant died; the beneficiary survived the participant; and then the beneficiary also died, before having withdrawn all of the money in the plan), FIRST determine RMDs applicable on the participant’s death using this ¶ 1.5.02 , plus either ¶ 1.5.03 or ¶ 1.5.04 , whichever is applicable. THEN proceed to what happens on the beneficiary’s later death, using ¶ 1.5.12 AND either:  ¶ 1.6.03 (E) or ¶ 1.6.05 (C) (whichever is applicable), if the participant’s sole beneficiary was his surviving spouse; or  ¶ 1.5.13 if the participant’s surviving spouse is not the sole beneficiary. Step 1: Gather basic information you will need in every case to complete the rest of the steps:

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