Life and Death Planning for Retirement Benefits

Table of Contents

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Road Map, cont.: RMDs in case of death AFTER the RBD ...............................................63 RMDs based on life expectancy of Designated Beneficiary ...............................................66 Death before the RBD: The 5-year rule................................................................................68 Life expectancy or 5-year rule: Which applies?...................................................................69 Computing RMDs based on participant’s life expectancy ..................................................71 Aggregation of inherited accounts for RMD purposes ........................................................73 Plan not required to offer stretch payout or lump sum ........................................................75 Switching between 5-year rule and life expectancy method ...............................................76 Who gets the benefits when the beneficiary dies? ...............................................................76 What is the ADP after the beneficiary’s death? ...................................................................78 1.6 S PECIAL R ULES FOR THE S URVIVING S POUSE ...........................................................................79 Overview of the special spousal rules...................................................................................79 Definition of “sole beneficiary” ............................................................................................80 How to determine RMDs of the surviving spouse ...............................................................80 Required Commencement Date: Distributions to spouse ....................................................84 If both spouses die before the participant reached 70 ½: The (B)(iv)(II) rule ...................85 When is a trust for the spouse the same as the spouse? .......................................................87 1.7 T HE B ENEFICIARY AND THE “D ESIGNATED B ENEFICIARY ”......................................................89 Significance of having a Designated Beneficiary ................................................................89 Who is the participant’s beneficiary?....................................................................................89 Definition of Designated Beneficiary ...................................................................................90 Estate cannot be a Designated Beneficiary...........................................................................92 Multiple beneficiary rules and how to escape them.............................................................92 Multiple beneficiaries: Who must take the RMD? ..............................................................93 Simultaneous and close-in-time deaths.................................................................................94 1.8 M ODIFYING RMD R ESULTS AFTER THE P ARTICIPANT ’ S D EATH .............................................95 The separate accounts rule .....................................................................................................95 How do you “establish” separate accounts? .........................................................................98 “Removing” beneficiaries by Beneficiary Finalization Date ..............................................99 1.9 E NFORCEMENT OF THE RMD R ULES .......................................................................................101 Who enforces the minimum distribution rules? .................................................................101 Failure to take an RMD: 50% excise tax, other effects .....................................................102 IRS waiver of the 50 percent excise tax .............................................................................103 Statute of limitations on the 50 percent excise tax.............................................................104 2.1 I NCOME T AX T REATMENT : G ENERAL &M ISCELLANEOUS ...................................................106 Plan distributions taxable as ordinary income....................................................................106 3.8% additional tax on net investment income...................................................................107 When does a “distribution” occur? .....................................................................................108 Actual distributions and deemed distributions ...................................................................108 Whose income is it? Community property etc. ..................................................................109 List of no-tax and low-tax distributions..............................................................................110 CHAPTER 2: INCOME TAX ISSUES .........................................................................................106