Life and Death Planning for Retirement Benefits

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CHAPTER 1: THE MINIMUM DISTRIBUTION RULES
The minimum distribution rules dictate when benefits must be
distributed from a retirement plan.
Congress wants tax-favored retirement plans to be retirement plans, not estate-building
wealth transfer vehicles. To that end, Congress enacte which compels certain annual
distributions from plans beginning generally at age 70½ or, if earlier, death. and its
related regulations are called the “minimum distribution rules” or the RMD rules.” The “required
minimum distribution” or RMD is the amount that must be distributed under these rules in a
particular year.
This Chapter explains the minimum distribution rules applicable for 2003 and later years
under the IRS’s final minimum distribution regulations for defined contribution (DC) plans. See
regarding earlier years; see regarding defined benefit plans and annuity payouts.
1.1 Introduction to the RMD Rules
The major attraction of the types of retirement plans discussed in this book is the
ability to accumulate funds inside the plan on a tax-deferred basis (or tax-free, in the case of a
“Roth” plan). The minimum distribution rules dictate when this tax-sheltered accumulation must
end tells us when benefits must start coming out of a retirement plan, and, once forced
distributions start, how much must be distributed each year. Advisors need to know the RMD rules
for planning purposes because these rules set the outer limits on plan accumulations, and because
failure to comply with the rules involves substantial penalties .
The RMD rules come in two flavors: “life” (distributions required during the participant’s
life; see ¶ 1.3 ; and “death” (distributions required after the participant’s death; see ¶ 1.5
.
1.1.01 Where to find the law
Congress established the required minimum distribution RMD) system in substantially its
present form in the Tax Reform Act of 1986. The RMD rules are found in (the very brief)
of the Code and in the Treasury’s (very lengthy) final RMD regulations: Reg.
through and
The final regulations described in this Chapter apply to all DC plan participants and
beneficiaries for calendar years beginning after 2002. Reg. A-2(a);
A-1(a). For the two versions of proposed minimum distribution regulations
promulgated in earlier years, see the . For rules
applicable to defined benefit plans , se
Minimum Distribution Road Maps
How to compute RMDs during the participant’s life: p.
How to compute RMDs after the participant’s death: p.