Life and Death Planning for Retirement Benefits

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Chapter 1: The Minimum Distribution Rules 33
3. Each year’s RMD is determined by dividing the prior year-end account balance by a
factor from an IRS table. RMDs are computed by dividing an annually-revalued account
balance by an annually-declining life expectancy factor. Reg. A-1(a).
(Exception: This principle does not apply to post-death distributions under the 5-year rule.
) This life expectancy factor is obtained from an IRS table and is called the
Applicable Distribution Period (ADP) or divisor; se for more on the definition
of these terms and where to find the IRS tables. The ADP is a divisor, not a percentage;
see Kenny Example, For how to determine the account balance, see
4. There is no maximum distribution. The formula tells you the required minimum
distribution. The rules impose no maximum distribution; the participant or beneficiary is
always free, as far as the IRS is concerned, to take more than the minimum (but see #6).
See Reg. A-1(a), A-2.
5. Taking more than the required amount in one year does not give you a “credit” you
can use to reduce distributions in a later year. Each year stands on its own. Reg.
A-2. Taking larger distributions in one year indirectly reduces later RMDs
by reducing the account balance.
6. The plan is not required to offer every option the law permits. Generally participants
and beneficiaries must accept whatever distribution options the plan happens to offer,
provided the plan does not call for slower distributions than the minimum distribution rules
would require. See See and for use of post-death rollovers to
solve this problem (in some cases).
7. The RMD cannot exceed 100 percent of the account balance. “[T]he required minimum
distribution amount will never exceed the entire account balance on the date of the
distribution.” Reg. A-1(a). This rule can help if the account is “wiped out”
before the RMD is taken; see
8. Distributions before the first Distribution Year don’t count. The first year for which an
RMD is required is called the “first Distribution Year.” See Distributions in years
prior to that year have no effect on the computation of the RMD for the first (or any other)
Distribution Year (other than indirectly, by reducing the account balance). Reg.
A-6(a).
9. Distribution period does not involve an election. Generally, determination of the ADP
for benefits, either during the participant’s life or after his death, does not involve an
“election” on the part of the participant or beneficiary. The ADP is prescribed by law based
on the identity of the participant and beneficiary. (This is in contrast to the now-obsolete
1987 proposed regulations , under which the participant had to make various
irrevocable elections at his RBD.) For the exceptions to this rule, see (if the
participant dies before his RBD, leaving his benefits to a Designated Beneficiary, the
beneficiary may have to elect between the life expectancy payout method and the 5-year