Life and Death Planning for Retirement Benefits

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30 Life and Death Planning for Retirement Benefits
distributions permitted by the minimum distribution rules puts a premium on naming a beneficiary
who will qualify for the life expectancy payout method.
Depending on investment returns, if the beneficiary is young, and takes no more than the
RMD each year, the value of the inherited plan can soar, under the life expectancy payout method,
by the time the beneficiary reaches retirement age. For example, a 38 year-old beneficiary who
inherits a $500,000 traditional IRA and withdraws it using the life expectancy method will have
$1,696,000 inside the IRA plus $1,432,000 outside the IRA in 30 years; if he cashes out the entire
account when he inherits it, he will have (outside the IRA) only $1,470,000. This example assumes
an 8% constant investment return for all assets and a 36% tax rate on all plan distributions and
outside investment income; projections were prepared using Brentmark Retirement Plan
Analyzer® and NumberCruncher® software .
Deferring income taxes is not always beneficial. See
1.1.04 WRERA suspended RMDs for 2009
The “Worker, Retiree, and Employer Recovery Act of 2008” (WRERA) amended
by adding the following new subparagraph (H), entitled “Temporary waiver of required
minimum distribution”: “The requirements of ...[ shall not apply for calendar year
2009 to” any defined contribution plan under or any governmental
457 plan; or “an individual retirement plan” (IRA). 419, and
491, provide guidance on
Thus, anyone who otherwise would have been required to take a distribution from one of
these types of plans in 2009—whether participant or beneficiary—could skip a year. Throughout
this Chapter, though it may not be mentioned every single time, bear in mind that there was no
RMD “for” the year 2009, and that:
 The one-year suspension generally did not change how post-2009 RMDs are
calculated. It did not extend lifetime or post-death life expectancy payouts, or
somehow cause the year 2009 to “drop out” of the calculations when determining
a person’s “Applicable Distribution Period” . For example, a participant
who is taking lifetime RMDs (¶ 1.3) will use his actual attained age in 2010 to
compute the 2010 RMD, just as would have been the case if 2009 had been a
“normal” year; he will not use his 2009 age for 2010, as if 2009 somehow did not
exist. See IRS Publication 590, IRAs (2009), Examples 1 and 2 (p. 34); see also ¶
1.5.05(D). For the one exception to this statement see the “5-year rule,”
 WRERA has the effect of extending certain deadlines by one year, namely the
deadlines for: Distributions under the “5-year rule” for beneficiaries of decedents
who died (before their Required Beginning Dates (RBDs)) in the years 2004–2009
(se ; the Designated Beneficiary of a participant who died before his RBD
to elect between a life expectancy payout and the 5-year rule B), (C)); and
the nonspouse Designated Beneficiary of a participant who died before his RBD to
qualify for a life expectancy payout by completing a direct rollover of inherited
benefits, to an “inherited IRA,” from a plan under which the 5-year rule applied
J)).