Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

F. Multiple beneficiaries. If the participant died on or after his RBD, leaving his benefits to multiple beneficiaries, see ¶ 1.7.06 (A) regarding the RMD for the year of the participant’s death. For years after the year of the participant’s death, determine whether the separate accounts rule applies ( ¶ 1.8.01 (B)). If the separate accounts rule does apply for that purpose, then, for years after the year of the participant’s death, determine RMDs for each separate account using the rules in these subparagraphs B–F based solely on the beneficiary(ies) of such separate account. If there are multiple beneficiaries whose interests do not constitute separate accounts for purposes of determining the ADP, then two rules apply. First, unless all the beneficiaries are individuals or see-through trusts, the participant is deemed to have “no Designated Beneficiary” and the “no-DB rule” applies, which is: The ADP is what would have been the participant’s remaining single life expectancy. Reg. § 1.401(a)(9)-4 , A-3 (third sentence), § 1.401(a)(9)-5 , A-5(a)(2). See ¶ 1.5.08 for how to compute RMDs based on what would have been the participant’s life expectancy and when such distributions must commence. Second, if all of the beneficiaries are individuals (or qualifying see-through trusts; see ¶ 6.2.03 ), the ADP is either the life expectancy of the oldest Designated Beneficiary (see ¶ 1.5.05 for how to compute) or (if greater) what would have been the remaining life expectancy of the participant ( ¶ 1.5.08 ). Reg. § 1.401(a)(9)- 5 , A-5(a)(1), A-7(a)(1).

RMDs based on life expectancy of Designated Beneficiary

Reg. § 1.401(a)(9)-5 , A-5(c)(1), tells us how to compute RMDs when the ADP is the life expectancy of an individual Designated Beneficiary. This is the so-called “ life expectancy payout method ” (also called the “life expectancy of the beneficiary,” “stretch payout,” or “ stretch IRA ” method). This method applies when the participant died either before or after the RBD, and:

 Benefits are left to an individual nonspouse Designated Beneficiary and the ADP is the beneficiary’s life expectancy. See ¶ 1.5.03 (C), ¶ 1.5.04 (C).

 Benefits are left to multiple Designated Beneficiaries whose interests are not treated as separate accounts for ADP purposes ( ¶ 1.8.01 (B)) and the ADP is the life expectancy of the oldest beneficiary. ¶ 1.7.05 (B), ¶ 1.6.03 (C).  Benefits are left to a “see-through trust” of which the surviving spouse is not sole beneficiary, and the ADP is the life expectancy of the oldest trust beneficiary. ¶ 1.5.03 (D), ¶ 1.5.04 (D). The method of computing a beneficiary’s life expectancy described in this ¶ 1.5.05 does NOT apply if the sole Designated Beneficiary is the surviving spouse (or a trust of which she is deemed to be the sole beneficiary); in that case see ¶ 1.6.03 (D) instead. A. How to compute the RMDs. Annual RMDs over the life expectancy of a Designated Beneficiary are computed similarly to the RMDs to the participant during the participant’s life ( ¶ 1.3.01 ): Each year’s RMD is computed by dividing the prior year-end account balance by a life expectancy factor (called the “Applicable Distribution Period” (ADP) or divisor) obtained from an IRS table. Reg. § 1.401(a)(9)-2 , A-1(c), second sentence, A-5,