Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

The method of computing a beneficiary’s life expectancy described in this ¶ 1.5.05 does NOT apply if the sole Designated Beneficiary is the surviving spouse (or a trust of which she is deemed to be the sole beneficiary); in that case see ¶ 1.6.03 (D) instead. A. How to compute the RMDs. Annual RMDs over the life expectancy of a Designated Beneficiary are computed similarly to the RMDs to the participant during the participant’s life ( ¶ 1.3.01 ): Each year’s RMD is computed by dividing the prior year-end account balance by a life expectancy factor (called the “Applicable Distribution Period” (ADP) or divisor) obtained from an IRS table. Beyond that general similarity are differences in the details. Here is what you need to know to compute RMDs for a Designated Beneficiary:  Determine the beneficiary’s life expectancy based on his age on his birthday in the year after the year of the participant’s death unless the surviving spouse is the sole beneficiary (in which case see ¶ 1.6.03 (D) instead of this section). Reg. § 1.401(a)(9)-5 , A-5(c)(1).  The beneficiary’s life expectancy is always computed using the Single Life Table ( ¶ 1.2.03 ). Reg. § 1.401(a)(9)-5 , A-6.  The beneficiary’s RMDs for years after the year of the participant’s death are computed using the fixed-term method ( ¶ 1.2.04 (B)), unless the surviving spouse is the sole beneficiary (in which case see ¶ 1.6.03 (D) instead of this section). Reg. § 1.401(a)(9)-5 , A-5(c)(1). Diane Example: Bonnie died in 2004, leaving her IRA to her sister Diane as Designated Beneficiary. Assume that the ADP is Diane’s life expectancy (see next paragraph). Diane’s life expectancy is determined as of 2005 (the year after the year of Bonnie’s death). Diane turns 46 on her birthday in 2005, so her life expectancy (ADP) from the Single Life Table is 37.9. For calculating her RMDs for 2006 (and later years), Diane deducts one from the prior year’s ADP, so her 2006 divisor is 36.9, 2007 is 35.9, and so on. She never looks at the table again after the first Distribution Year. For purposes of this particular computation, it does not matter whether Bonnie died before or after her RBD ( ¶ 1.5.02 , Step 3), provided that (if Bonnie died before her RBD) Diane either elects or is defaulted into the life expectancy payout method (see ¶ 1.5.07 ), or (if Bonnie died after her RBD) Diane is younger than Bonnie (so Diane’s life expectancy is the ADP; see ¶ 1.5.04 (C)). See ¶ 1.5.03 (A) or ¶ 1.5.04 (A) regarding the RMD for 2004 (the year of Bonnie’s death). See “D” below regarding the 2009 one-year suspension of RMDs. B. Required Commencement Date. Distributions under the life expectancy payout to a nonspouse Designated Beneficiary begin the year after the year of the participant’s death (Regs. § 1.401(a)(9)-2 , A-5; § 1.401(a)(9)-3 , A-3(a)), unless the participant died in 2008 in which case they begin in 2010 instead of 2009 (see “D”). Thus, the Required Commencement Date for a life-expectancy-of-the-beneficiary payout is December 31 of the year after the year of the participant’s death (or December 31, 2010, if the participant died in 2008). In addition, a distribution for the year of death itself is sometimes required