Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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participant’s life expectancy as the ADP, not the beneficiary’s own life expectancy. There is no election or choice involved in this situation; the RMDs are calculated based on the longer of the beneficiary’s life expectancy or the participant’s life expectancy. Of course, as always, regardless of who is the beneficiary, the plan may require an even faster payout, see ¶ 1.5.10 ; or the beneficiary may choose to take a faster payout, or a lump sum, if permitted by the plan, ¶ 1.2.01 , #4. B. How to calculate the participant’s life expectancy . Use the IRS’s Single Life Table ( ¶ 1.2.03 ) and find the divisor or “distribution period” (ADP) based on the age the participant had attained (or would have attained had he lived long enough) on his birthday in the year of his death. This number, reduced by one, is the divisor for the year after the year of the participant’s death. The divisor is reduced by one each year thereafter (fixed-term method; ¶ 1.2.04 (B)). Reg. § 1.401(a)(9)-5 , A-5(a)(2), (c)(3). Under § 401(a)(9)(H) (see ¶ 1.1.04 ), the beneficiary did not have to take the RMD that would otherwise normally have been required for the year 2009. Cookie Example : Cookie died in July, 2006, at age 73, leaving her IRA to her estate. She had already taken her RMD for 2006. The estate’s ADP is computed as follows. Cookie was born in November, 1932, so she would have turned age 74 on her 2006 birthday had she lived. The life expectancy factor for age 74 from the Single Life Table is 14.1. Therefore, the estate’s divisor for 2007 is 13.1 (14.1 minus one). The first RMD to the estate (payable in 2007) is the account balance as of December 31, 2006, divided by 13.1. This RMD must be taken by 12/31/07. In 2008, the RMD will be the 12/31/07 account balance divided by 12.1. In 2009 (which would have been the “11.1” year) there is no RMD; see ¶ 1.1.04 . In 2010, the RMD will be the 12/31/09 account balance divided by 10.1. C. Other aspects. The “participant’s life expectancy” is never available as an optional ADP in cases of death before the RBD (and never applies to Roth IRAs, as to which death is always “before the RBD”; see ¶ 5.2.02 (A)). Also, the Uniform Lifetime Table applies during the participant’s life, and also applies for the year of his death ( ¶ 1.5.04 (A)), but has no possible application after that point in computing distributions to a beneficiary. The Single Life Table is the ONLY table used to compute life expectancy payout RMDs from inherited plans beginning with the year after the year of the participant’s death, regardless of whether the ADP is the beneficiary’s life expectancy ( ¶ 1.5.05 (A)) or the participant’s (this ¶ 1.5.08 ). 1.5.09 Aggregation of inherited accounts for RMD purposes RMDs must be computed separately with respect to each inherited traditional QRP account, IRA, Roth IRA, and 403(b) account a beneficiary holds. Reg. § 1.408-8 , A-9. Having computed the RMDs separately for each account, the beneficiary has some flexibility regarding which account he actually takes the RMDs from. The RMD from each inherited QRP must be taken from that QRP; multiple QRPs cannot be aggregated with each other for RMD purposes, even if maintained by the same employer. The flexibility pertains to IRAs and 403(b)s: A. Accounts that may be aggregated if held by one beneficiary. A beneficiary can take:

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