Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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If the spouse makes the election in any year after the year of the participant’s death, her election is retroactive to the beginning of the year the election occurs, so RMDs will be calculated based on her being the participant beginning with the year of the election. Reg. § 1.408-8 , A-5(a), fifth and sixth sentences. The “account balance” ( ¶ 1.2.05 ) used to compute the RMD for a traditional IRA for the year of the election in this case is (presumably; there is no IRS pronouncement on point) the prior year-end balance of the elected account, even though the account was not “hers” in such prior year. C. If spouse is oldest of multiple Designated Beneficiaries. If benefits are left to a see- through trust ( ¶ 6.2.03 ) of which the surviving spouse is the oldest beneficiary, but of which the spouse is not the sole beneficiary, then the trust’s ADP is the life expectancy of the surviving spouse computed just as if the oldest Designated Beneficiary were someone other than the spouse. Reg. § 1.401(a)(9)-5 , A-5(c)(1); see ¶ 1.5.03 (D), ¶ 1.5.04 (D), ¶ 1.5.05 . When this rule applies, the spouse’s later death will have no impact on the ADP; see “E” below. D. During spouse’s life, if spouse is sole Designated Beneficiary. If the spouse is the sole beneficiary of the deceased participant; or if a trust is the sole beneficiary and the spouse is deemed to be the sole beneficiary of the trust (see ¶ 1.6.06 (A), (B)); then the ADP for distributions to the spouse (or such trust) will generally be the surviving spouse’s life expectancy. (The exceptions would be, if the participant died before his RBD and the spouse or trust elected or was defaulted into the 5-year rule, ¶ 1.5.07 ; or if the participant died after his RBD and the ADP is what would have been the participant’s life expectancy because the participant was younger than the surviving spouse, ¶ 1.5.04 (B).) The spouse’s life expectancy will be determined using the Single Life Table ( ¶ 1.2.03 ) and the spouse’s age on her birthday in each year for which a distribution is required (recalculation method; ¶ 1.2.04 (A)). Reg. § 1.401(a)(9)-5 , A-5(c)(2) (first sentence), A-6. See ¶ 1.6.02 for how to determine whether the spouse is the “sole beneficiary.” For the effect of the 2009 one-year suspension of RMDs, see ¶ 1.5.05 (D). Josephine Example: Napoleon died, after his RBD, leaving his 401(k) plan to his younger surviving spouse, Josephine, as sole beneficiary. She is taking annual RMDs as Napoleon’s beneficiary; she did not roll over the benefits to her own retirement plan. Each year, the plan sends an RMD to Josephine based on her life expectancy (from the Single Life Table) for her attained age on her birthday in the year of the distribution ( i.e., her age as of the end of each Distribution Year). Josephine turned 46 in the year after Napoleon’s death, so her “divisor” (ADP) for the first Distribution Year was 37.9. For the second Distribution Year, Josephine’s divisor is not 36.9 (37.9 minus one—as it would be under the fixed-term method; see Diane Example, ¶ 1.5.05 (A)); instead Josephine’s second year divisor is 37.0 (the life expectancy of a person age 47). Josephine, as a surviving spouse-sole beneficiary, determines her divisor each year by going back to the Single Life Table and determining her new life expectancy based on her new age (recalculation method). E. Note that the spouse does not have to “elect” to use the recalculation method; that’s just how her RMDs are determined. If a surviving spouse made a mistake, for example, and computed her RMDs using the fixed-term method, that would not change the amount of her actual RMD; it would just mean that she was taking larger distributions than she was required to take. If she caught her error quickly enough, she could roll the excess back into a tax-deferred account to avoid paying tax on it. RMD s to spouse’s successor