Retirement and IRA Planning

Questions and Answers - Q&As

• When must you begin withdrawals from your retirement plan or IRA?
• What are the schedules included in the new IRS regulations?
• How much of your account must be withdrawn in each year?
• When must the MRD be withdrawn for a year?
• Are you required to withdraw the MRD from each separate account?
• What is the penalty if the MRD is not withdrawn for a year?
• What are the MRD rules for inherited retirement benefits and IRAs?
• What is a designated beneficiary ("DB")?
• What is the Five Year Rule?
• MRD Computation: Death After RBD with DB?
• MRD Computation: Death After RBD with no DB?
• MRD Computation: Death Before RBD with DB?
• MRD Computation: Death Before RBD with no DB?
• What is the spousal rollover option?
• Should your surviving spouse rollover an inherited account?
• Can a beneficiary designation form be corrected after death?
• What tax reduction techniques are available for substantial IRAs?

In general, amounts must begin to be withdrawn no later than the April 1 of the year following the year in which you attain the age of 70½. This date is referred to as the Required Beginning Date ("RBD").
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The IRS issued final regulations simplifying and clarifying the rules concerning the minimum required distributions for retirement plans and IRAs. The regulations included three schedules: (i) Single Life Table - found at Schedules [S-2], (ii) Uniform Lifetime Table - found at Schedules [S-3], and (iii) Joint and Last Survivor Table.
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In general, the annual amount which is required to be withdrawn is computed by dividing the value in the account at the end of the prior year by the divisor contained in the Uniform Lifetime Table. See Schedules [S-3]. The amount which is required to be withdrawn is referred to as the Minimum Required Distribution ("MRD").
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The MRD for a year must be withdrawn on or before the last day of the year.
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If you have more than one retirement plan or IRA account, you may withdraw the total of the MRDs on an aggregate basis, rather than on an account by account basis.
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The amount of the penalty can be 50% of the required amount that is not withdrawn.
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The answer involves two main issues: (i) whether death occurred before or after the RBD and (ii) whether you have a designated beneficiary.
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A designated beneficiary is a beneficiary who is a person and not an estate or a charity. Certain trusts can qualify as a designated beneficiary.
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The five year rule requires the account balance to be withdrawn completely by the end of the fifth calendar year following the year of death. The five year rule does not require any distributions prior to the end of the fifth year following the year of death.
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The MRD is generally determined by dividing the account balance by the life expectancy of the younger of the designated beneficiary or the participant under the Single Life Table at the time of death. In each following year, the MRD is calculated by dividing the December 31 account balance for the prior year by the life expectancy at the date of death reduced by 1.
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The MRD is computed by using the particpant's age on the participant's birthday during the year of death under the Single Life Table and reduced by 1 for each year thereafter.
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The MRD is generally computed over the beneficiary's life expectancy using the Single Life Table.
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The MRD is computed under the Five Year Rule.
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Your spouse may rollover the balance in your account into your spouse's own IRA rollover account. If your spouse does not elect to rollover your IRA account, then the payments can be made over the life expectancy of your surviving spouse or under the Five Year Rule.
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In most circumstances, a spousal rollover is the preferable option because the rollover permits a stretch of the account so that the account could be payable to children or other persons after the death of the surviving spouse. However, if your spouse may need funds and your spouse is under 59 1/2, it would be advisable not to rollover a portion of the account so that your spouse would be able to withdraw some of the funds without incurring the 10% penalty for early withdrawal.
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Under some circumstances, errors in a beneficiary designation form can be corrected through the use of disclaimers, cashing out other beneficiaries and creating separate shares. The date by which any correction must be accomplished is the September 30th after the year of death.
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If you have very substantial IRAs or retirement benefits, there are available techniques to reduce the potentially exorbitant taxes [estate taxes, income taxes and possible generation skipping taxes] that can be imposed against the IRAs and retirement benefits. Some of these techniques involve (i) conversion to a Roth IRA, (ii) family limited partnerships and (iii) replacement insurance products which can be funded with distributions from the IRA or retirement accounts.
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The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

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