Life and Death Planning for Retirement Benefits

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Chapter 1: The Minimum Distribution Rules 49
“distributions under a designation (before January 1, 1984) by any employee in accordance with a
designation described in section 242(b)(2) of [TEFRA] (as in effect before the amendments made
by this Act).” TRA ’84, § 521(d)(2)-5.
To avoid the impact of TEFRA, there was a flurry of activity among sophisticated plan
participants trying to make a “designation” by December 31, 1983 that would enable them to
continue to use the older, more liberal rules. Participants with valid TEFRA 242(b) elections can
postpone the start of RMDs past age 70½, until retirement (even if they own more than 5 percent
of the employer), and their death benefits are not subject to the “5-year rule” or the “at-
least-as-rapidly” rule .
For the requirements of a valid TEFRA 242(b) election see Notice 83-23, 1983-2 C.B. 418,
and Reg. A-13–A-16. For more detail regarding TEFRA 242(b) elections see the
Special Report: Ancient History .
1.4.09 Effect of 2009 one-year suspension of RMDs
This section explains how the one-year suspension of RMDs in 2009 affected
participants whose first distribution year was 2008 or 2009 and whose RBD therefore fell in 2009
or 2010.
A. First distribution year was 2008, RBD was in 2009. A participant who attained age 70½
(or retired, whichever is applicable) in 2008, but postponed taking his 2008 RMD until
2009 , still had to take his 2008 RMD by April 1, 2009. Notice 2009-5
IRB 419.
B. First distribution year was 2009, RBD was in 2010. An individual who turned 70½ (or
retired, whichever was applicable) in 2009 (so 2009 was his “first Distribution Year”) did
not have to take his 2009 RMD until April 1, 2010. Notice made it clear that this
individual was excused from taking the 2009 distribution: “The 2009 RMD waiver under
the Act does apply to individuals who may be eligible to postpone taking their 2009 RMD
until April 1, 2010 ....” Emphasis added. But even though no distribution had to be taken
by that date, April 1, 2010, is still considered to be such person’s RBD for purposes of
applying the post-death RMD rules (se Step 3) and for purposes of the deadline
for the 2010 RMD (i.e., it is 12/31/10, not 4/1/11). The RBD “with respect to any individual
shall be determined without regard to” the one-year suspension of RMDs in 2009 for
purposes of applying for years after 2009.
1.5 RMDs after the Participant’s Death
After the participant’s death, the minimum distribution rules apply to the beneficiary. The
post-death RMD rules are more complicated than the lifetime RMD rules.
The good news is there are only four possible post-death payout methods: life expectancy
of the surviving spouse, life expectancy of a nonspouse beneficiary, life expectancy of the
participant, and the 5-year rule. What gets complicated is trying to figure out which one applies to
your particular beneficiary and the particular plan he, she, or it inherited.