Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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Beneficiary) applies to benefits of a decedent who died before his RBD. First determine who the beneficiary is; see ¶ 1.7.02 . Then: 1. If the participant died before his RBD with no Designated Beneficiary ( ¶ 1.7.03 ), you’ve finished the process: The 5-year rule ( ¶ 1.5.06 ) is the only distribution method available. § 401(a)(9)(B)(ii) ; Reg. § 1.401(a)(9)-3 , A-4. Even in that situation, the plan may require a faster payout; see ¶ 1.5.10 . If the participant’s benefits are left to a Designated Beneficiary, proceed to Step 2. 2. The plan may provide that, even if the benefits are left to a Designated Beneficiary, the 5-year rule applies in some or all situations, with no option for the Designated Beneficiary to elect a life expectancy payout. If the plan has that rule and it applies to this beneficiary, the plan provision controls. Reg. § 1.401(a)(9)-3 , A-4(b). See ¶ 4.2.04 (J) for how to get out from under this rule. 3. A retirement plan may (but is not required to) allow a Designated Beneficiary to elect which method will apply. If the plan permits Designated Beneficiaries to elect between the 5-year rule and the life expectancy payout, then the following three additional rules apply:  The election becomes irrevocable by the deadline for making the election (see “B” below).  The plan can provide a default rule, under which the life expectancy method or the 5-year rule will automatically apply if the Designated Beneficiary fails to elect one method or the other by the applicable deadline. If the plan does not provide a default rule, the default rule is the life expectancy of the Designated Beneficiary. Reg. § 1.401(a)(9)-3 , A-4(c). If the beneficiary is defaulted into the life expectancy payout, but misses one or more RMDs (for example, because he was unaware of the existence of the account), the beneficiary can start taking annual RMDs as soon as he learns of the account; he will need to file Form 5329 to request a waiver of the penalty for missed years (see ¶ 1.9.03 ). See PLR 2008-11028 for an example of this sequence. Another alternative is for the beneficiary to avoid the penalty by complying with the 5-year rule; see ¶ 1.5.11 (C). B. Deadline for Designated Beneficiary’s election between life expectancy payout and 5- year rule: General rule. Reg. § 1.401(a)(9)-3 , A-4(c), provides that the deadline for making this election is “the earlier of the end of the calendar year in which distribution would be required to commence in order to satisfy the requirements for the life expectancy rule in section 401(a)(9)(B)(iii) and (iv) ...or the end of the calendar year which contains the fifth anniversary of the date of death of the employee.” This rule can produce different deadlines depending on whether the spouse is (see “C”) or is not (see “D”) the sole Designated Beneficiary. If the deadline computed under “C” or “D” would fall in 2009, it is extended to the end of 2010 as a result of the one-year suspension of RMDs ( ¶ 1.1.04 ). Notice 2009-82 , 2009-41 IRB 491, Part V, A-2. C. Deadline for election if the sole Designated Beneficiary is the surviving spouse (or a trust of which the spouse is deemed to be the sole beneficiary). The deadline under § 401(a)(9)(B)(iv) that would appear to apply if the surviving spouse is the sole beneficiary 