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George H. Coughlin II, CFP

Introductory Remarks

Most taxpayers mistakenly believe that the required distribution rules spelled out in §401(a)(9) of the Internal Revenue Code only apply to lifetime distributions beginning at age 70½ from their qualified retirement plans, Individual Retirement Accounts and Tax Sheltered Annuities [§403(b) plans]. Failure to consider the numerous financial and estate planning implications of those tax provisions can lead to unpleasant complications during retirement and/or substantial financial loss for survivors. Everyone with assets in a retirement plan, regardless of their age, needs to have a reasonable understanding of minimum required distributions. In certain circumstances, that understanding can be more valuable than the selection of a prudent investment.

1. Explain the difference between a Designated Beneficiary and a recipient named on the beneficiary designation form for a qualified retirement plan, IRA or TSA.
   
2. List the four requisites a revocable trust must fulfill in order for it to serve as a suitable beneficiary under IRC §401(a)(9)?
   
3. What complications arise if you name a charity as beneficiary for a portion the assets in your qualified retirement plans, IRA's or TSA's?
   
4. Why should a married couple seldom, if ever, elect to redetermine the life expectancy of both spouses when computing required distributions at age 70½ and beyond?
   
5. Describe the options available to a non-spouse beneficiary of an IRA who wishes to avoid an immediate payout of the decedent’s account and the subsequent tax liability.
   
6. If a single parent with an IRA is approaching age 70½ or an 80-year-old widow(er) is about to establish a spousal rollover, why is it important for him or her to elect a primary method for calculating required distributions if the children are named as beneficiaries of the account?

George Coughlin is NOT responsible for, and cannot control the content of, the material listed in “Other Resources” below.  In fact, those reference items, software programs and web sites may provide incorrect information, produce inaccurate results or make false statements.   Furthermore, any investment or insurance advice as well as recommendations to purchase or sell securities you receive from a resource listed in this handout does NOT involve George Coughlin or his broker/dealer ePLANNING Securities, Inc.  Please use appropriate caution.  

RULES OF THE ROAD

Why Were The Minimum Distribution Rules Created?

Simply put, money set aside and accumulated in qualified plans is granted favorable tax treatment with the expectation that it will be used for retirement income purposes. To curtail one potential abuse of that opportunity, Congress decided to set duration limits on the tax deferral aspect of all qualified retirement plans. IRC §401(a)(9) is the mechanism to accomplish that objective. Under the guidelines contained in that paragraph, everyone is forced to begin making withdrawals at a prescribed level from all their retirement plans at a specified date even if they do not need the extra revenue and/or would prefer to leave the capital in their respective plans.

Please note that throughout this text the expression "qualified plan(s)" is used to denote pension plans, profit sharing plans -- including those under §401(k), stock bonus plans, traditional IRA’s under IRC §408, Roth IRA’s under IRC §408A and tax sheltered annuities under IRC §403(b). Whenever IRC §401(a)(9) does not apply uniformly to all six entities, the exception will be noted. None of the comments on these pages address the application of IRC §401(a)(9) to so-called Section 457 Plans for government workers.

It is important to remember that the newly enacted Roth IRA provides several significant exemptions from IRC §401(a)(9). The first is an avoidance of required distributions during the owner’s lifetime. That is to say, Roth IRA’s are immune from IRC §401(a)(9)(A). They are also exempt from the Minimum Distribution Incidental Benefit provisions of IRC §401(a). Furthermore, Roth IRA’s are not impacted by IRC §401(a)(9)(B)(i) when the owner dies. Instead, beneficiaries need only adhere to the relatively straightforward procedures of IRC §401(a)(9)(B)(ii) and (iii). Essentially, those are the same rules that apply to non-spouse beneficiaries when traditional IRA owners die before their required beginning date. That means beneficiaries have only one set of rules to follow regardless of the age of the Roth IRA owner on his/her date of death.

When Do Those Rules Come Into Play?

The minimum distribution rules are best known for their impact on taxpayers that have reached age 70½. Those are the so-called "living" requirements. However, they have an equally important impact following the death of the plan participant, regardless of that person's age.

1. Unless a limited exception applies (see Required Beginning Date), the "living" aspects of the required distribution provisions found in IRC §401(a)(9)(A) kick into gear during the year a participant reaches age 70½.
1. Technically speaking, the distribution for the initial year may be delayed until April 1 of the year following the year in which someone attains age 70½. That date is referred to as their Required Beginning Date or RBD. [§401(a)(9)(C)] A complete definition of RBD, including an exception for certain participants, is provided later in this document.
2. If the taxpayer elects to delay making the first year’s minimum withdrawal until sometime between January 1 and April 1 of the year after they reach age 70½, they are still required to make a minimum distribution from their qualified plan in the year they reach age 71½. Therefore, the election to delay the first year’s payment forces two taxable distributions to occur in a single year -- the year they turn age 71½. [§1.401(a)(9)-1, F-1,(c)]
3. The rules outlined in the previous paragraph also apply to a select group of participants who may delay their RBD until the year after they retire, if retirement follows the year they attain age 70½. (For more details, please refer to the discussion entitled "Required Beginning Date".) Those special retirees must take a required distribution from their plan for the year in which they retire. That distribution for the initial year may be delayed until April 1 of the year following the year they retire. Such a delay, however, does not relieve the participant of the need to also take a minimum required distribution for the year following their retirement.
4. A further delay is possible for the pre-1987 portion of tax sheltered annuity plans covered under IRC §403(b). Please note, however, that all post-1986 earnings and contributions are subject to the normal required distribution rules. [§1.403(b)-2, Q&A-2(a)] 

2. The same paragraph of the Internal Revenue Code also stipulates the minimum distributions that must be carried out following the death of a participant. The postmortem rules break down into two subcategories depending on when the participant dies.
1. If the decedent passes away on or after the RBD, his/her assets remaining in the qualified plan must be distributed at least as rapidly as under the METHOD of distribution being used to satisfy the MRD rules on the date of the participant’s death. [§401(a)(9)(B)(i)]
2. If death takes place before the required beginning date, a beneficiary is allowed to withdraw the assets at anytime during the period that ends on December 31 of the fifth year following the year of the participant’s death. [§401(a)(9)(B)(ii)]
1. There is a general exception to the Five-Year Rule available for any portion of the participant’s interest in the account payable to someone who qualifies as a "Designated Beneficiary". A "DB" may elect to pull out his or her share of the plan assets over a longer time period provided certain prerequisites are met. For example, the tax code allows one heir in a group of Designated Beneficiaries to receive his/her share of the plan over the life expectancy of the oldest DB even though the other members in the group take 100% of their share immediately. [§401(a)(9)(b)(iii)]
2. The spousal exception to the Five-Year Rule offers a surviving spouse even greater flexibility than the general exception. [§401(a)(9)(b)(iv)] 
3. The flow chart on Table 2 entitled "Tax Rules Governing Postmortem Distributions From Qualified Plans" summarizes the preceding points.

What Is The Annual Minimum Required Distribution During Your Lifetime?

Please remember that a minimum required distribution is exactly what the title states. It is only a minimum. [§1.401(a)(9)-1, F-1(a)] Taxpayers are free to withdraw a greater amount anytime they wish. Regrettably, an excess taken out one year may not be used to offset a portion of the required amount in a future year. [§1.401(a)(9)-1, F-2] Roth IRA owners need not make required distributions during their lifetime. [§401A(c)(5)(A)]

1. The mathematical formula for calculating minimum required distributions in any given year is relatively straightforward.
1. MRD = Market Value on Preceding December 31 ¸ Life Expectancy Factor
2. Table 1A of the attached illustrations entitled "Calculating Minimum Required Distributions At Age 70½ and Beyond" provides an example based on the Dual Redetermined joint life expectancy of a married couple using their attained ages each year. 
3. Table 1B of the attached illustrations entitled "Calculating Minimum Required Distributions At Age 70½ and Beyond" provides an example based on a Joint Fixed-Period method of determining life expectancy.
2. Keep in mind that aggregation rules are available for required distributions from multiple IRA’s and Tax Sheltered Annuities. Unfortunately, pension, profit sharing and stock bonus plans are NOT eligible for this benefit. [Revenue Notice 88-38]
1. This means a taxpayer with three IRA’s could pull the sum of the MRD’s individually computed for each of the three accounts entirely from the lowest yielding IRA rather than pro rata from all three. The same would be true if the client had a trio of TSA’s.
2. It is not permissible to take IRA minimum required distributions from a low yielding TSA or vice versa.

Unfortunately, a taxpayer must sift through a number of potentially confusing variables before it is possible to know the proper life expectancy factor to use. The optimum path through that decision tree is often controlled more by estate planning considerations than income tax planning. The following list of considerations serves as an effective road map to begin the process.

1. Please remember that this planning is important even though you have decided to withdraw more than your minimum required distributions each year.
1. There is an immediate impact if you do wish to minimize your taxable distributions.
2. Furthermore, there are significant tax ramifications for your heirs regardless of the level of withdrawals during your lifetime.
2. What is your family situation?
1. Are you married, divorced, widowed or never married?
2. Are there children or grandchildren to whom you would like to leave the residual of your qualified plans?
3. Will a sister, brother, niece or nephew be your beneficiary?
3. Will family members receive their beneficial share of the qualified plans outright or will the assets in those plans pass into a trust after you die?

4. Is there a Designated Beneficiary (DB) for each of your qualified plan account?
1. If the Designated Beneficiary is not your spouse, what is the age difference between the you and the DB?
2. If the original DB has been replaced, is the new DB older than the original Designated Beneficiary?
3. Was the replacement of the original DB brought about by the death of that individual?
5. What are the provisions in each of your plan documents concerning distribution options following the participant’s death?
1. If death occurs before the required beginning date, will the restrictions in those plans compliment or defeat your desires and the wishes of your beneficiaries?
2. If the participant dies on or after the required beginning date, are the postmortem distribution options available in your qualified plans less flexible than the tax rules?
6. What are the provisions in each of your plan documents concerning redetermination of the participant’s life expectancy each year?
1. If a plan document allows a participant to annually redetermine his/her life expectancy, must an election be filed with the plan administrator or is the redetermination mandatory?
2. Has such an election been filed with each of your plan administrators?
3. Can you opt not to redetermine life expectancy?
7. Is there a chance that your ultimate heirs may want to prolong tax deferral?

Technical Terms And Concepts You Need To Understand

When Congress and the IRS wrote the rules of the road, the notion of "tax simplification" was ignored. To be an effective navigator, it is necessary to grasp a few definitions and general ideas before leaving your driveway for a trip across town.

1. Required Beginning Date (RBD): All IRA owners as well as participants in qualified retirement plans that own more than five percent of the sponsoring employer must begin distributions no later than April 1 of the year following the year in which the participant attains age 70½. The RBD for all other employees and §403(b) plan participants is April 1 of the calendar year following the later of either: (1) the calendar year in which the employee attains age 70½, or (2) the calendar year in which the employee retires. [§401(a)(9)(C)] Note, however, that under Revenue Notice 97-75 a plan may elect to use the RBD rules mandated for IRA’s, i.e., April 1 of the year following the year the employee attains age 70½. Therefore, it is necessary to determine if such an election has been made for the plan in question before it is possible to be certain about the Required Beginning Date for its participants. It is also important to keep in mind that the special rule for extending the RBD only applies to qualified plans and §403(b) plans maintained by the participant’s current employer. The RBD rules for all plans associated with a former employer are the same as for IRA’s.

2. Life Expectancy Factor (LEF): Except for MDIB purposes (see paragraph "E" below), the life expectancy factor must be computed by using the "expected return multiples" listed on Tables V or VI of Regulation §1.72-9. [§1.401(a)(9)-1, E-3 & E-4] Excerpts of those tables are included in Appendix E of IRS Publication 590. Note, however, that in the latter publication the tables are numbered I and II respectively.

3. Designated Beneficiary (DB): It is possible to name a beneficiary for a qualified plan but NOT have a "Designated Beneficiary". (See paragraph "H" below for examples of those exceptions.)
1. The "designation" must be spelled out in the plan itself or with an affirmative election by the plan participant. [§1.401(a)(9)-1, D-1]
1. It is not valid if merely stipulated under state law. [§1.401(a)(9)-1, D-2,(a)(1)]
2. It is not valid to simply use a joint and last survivor annuity settlement without also naming a beneficiary. [§1.401(a)(9)-1, D-2,(a)(1)]
2. The IRC only allows the Designated Beneficiary to be an individual or group of individuals. [§.401(a)(9)(E)]
1. For purposes of required distributions during the participant’s lifetime on or after the RBD, that individual (or those individuals) must be identifiable as of the required beginning date. [§1.401(a)(9)-1, D-2(a)(1)]
2. If a participant dies before the RBD, the individual (or those individuals) must be identifiable as of the date of death. [§1.401(a)(9)-1, D-2(a)(1)]
3. That individual (or those individuals) must be identifiable at all subsequent times. [§1.401(a)(9)-1, D-2(a)(1)]
3. Under certain circumstances specified in the Proposed Regulations, DB status can be achieved if a trust is named as beneficiary.
1. A Designated Beneficiary can exist when a trust is the qualified plan’s beneficiary provided four prerequisites are met. [§1.401(a)(9)-1, D-5]
1. The trust is valid under state law, or would be but for the fact that there is no corpus.
2. The trust is irrevocable or will, by its terms, become irrevocable upon the death of the participant.
3. The trust’s own beneficiaries who will be receiving proceeds from the qualified plan are named individuals or readily identifiable from the trust instrument, e.g., a class of beneficiaries such as spouse, children, etc. is acceptable.
4. Certain documentation is provided to the plan administrator so that the beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the participant’s benefit are identifiable to the plan administrator.
2. For purposes of required distributions during the participant’s lifetime, all four of the prerequisites must be met as of the later of the date on which the trust is named as a beneficiary of the participant or the participant’s RBD and all subsequent periods during which the trust is named as a beneficiary. [§1.401-(a)(9)-1, D-5(b)] The fourth requirement can be satisfied under either of the following conditions. [§1.401-(a)(9)-1, D-7(a)]
1. The participant provides a copy of the trust instrument to the plan administrator and agrees that if the trust instrument is amended at any time in the future, he/she will, within a reasonable time, provide to the plan administrator a copy of each such amendment.
2. The participant provides the plan administrator with a list of all the beneficiaries of the trust (including contingent and remainder beneficiaries) along with a description of the conditions for their entitlement. He or she must certify that, to the best of his/her knowledge, the list is correct and complete and that the requirements of 3 a) (1), (2) and (3) above are satisfied. In addition, the plan participant must agree to provide corrected certifications if an amendment changes any information previously certified. Finally, the participant agrees to provide a copy of the trust instrument to the plan administrator upon demand.
3. For purposes of required distributions following a participant’s death before his or her RBD, prerequisites (1), (2) and (3) in item 3 a) above must be satisfied as of the date of death. Requirement (4) must be satisfied prior to the end of the ninth month following the month of the participant’s death. [§1.401(a)(9)-1, D-6(a)] The documentation requirement can be fulfilled under either of the following conditions. [§1.401(a)(9)-1, D-7(b)]
1. The trustee provides the plan administrator with a copy of the actual trust document for the trust that is named as a beneficiary of the participant under the qualified plan as of the date of death.
2. The trustee provides the plan administrator with a final list of all the beneficiaries of the trust as of the date of death (including contingent and remainder beneficiaries) along with a description of the conditions for their entitlement. The trustee must certify that, to the best of the trustee’s knowledge, the list is correct and complete and that the requirements of 3 a) (1), (2) and (3) above are satisfied as of the date of death. In addition, the trustee agrees to provide a copy of the trust instrument to the plan administrator upon demand.
4. For purposes of required distributions following a participant’s death after his or her RBD, all four prerequisites must have been fulfilled as outlined in item 3 b) above pertaining to distributions during the participant’s lifetime. In addition, either of the following steps must be carried out prior to the end of the ninth month following the month of the participant’s death. [§1.401(a)(9)-1, D-7(b)]
1. The trustee provides the plan administrator with a copy of the actual trust document for the trust that is named as a beneficiary of the participant under the qualified plan as of the date of death.
2. The trustee provides the plan administrator with a final list of all the beneficiaries of the trust as of the date of death (including contingent and remainder beneficiaries) along with a description of the conditions for their entitlement. The trustee must certify that, to the best of the trustee’s knowledge, the list is correct and complete and that the requirements of 3 a) (1), (2) and (3) above are satisfied as of the date of death. In addition, the trustee agrees to provide a copy of the trust instrument to the plan administrator upon demand.
4. Calculation-DB: If a group of individuals are DB’s, the person with the shortest life expectancy will be the Designated Beneficiary for purposes of selecting the life expectancy factor to use in MRD calculations. [§1.401(a)(9)-1, E-5(a)(1)] This person is sometimes referred to as the "calculation-DB" although that term does not appear in the Code or Regulations.
1. In the event one or more of the plan’s beneficiaries does not qualify as a Designated Beneficiary, the participant will be treated as not having any DB’s even if the balance of the beneficiaries are individuals that fulfill the DB requirements. NOTE: This rule applies regardless of when death occurs. [§1.401(a)(9)-1, D-2A(b) and E-5(a)(1)]
2. The existence of a contingent beneficiary will have no bearing on determining the individual DB with the shortest life expectancy OR whether there is a beneficiary that does not qualify as a DB. [§1.401(a)(9)-1,E-5(e)(1)]
5. Minimum Distribution Incidental Benefit (MDIB) Rule: To eliminate one possible abuse when calculating MRD’s, there is a special rule for cases involving a non-spouse DB that is more than ten years younger than the participant. [Note: IRC §408A(c)(5)(B) exempts Roth IRA’s from the MDIB provisions.]
1. When the age spread between the participant and the calculation-DB exceeds ten years, the "applicable divisor" listed in §1.401(a)(9)-2, Q-4 or Q-5 must be substituted for the life expectancy factor when calculating MRD’s. Those applicable divisors can also be found in Appendix E of IRS Publication 590.
2. Except in cases of multiple beneficiaries, the actual age of a spousal beneficiary is always used even if he/she is fifteen or twenty years younger than the participant. [§1.401(a)(9)-2, Q-7(a)] Please note, however, that the MDIB rules do apply whenever a spouse that is more than ten years younger than the participant is not the sole primary beneficiary. [§1.401(a)(9)-2, Q-7(b)]
3. Special Note: The MDIB rule only applies to years when the plan participant is alive for at least a portion of the year. Starting in the year following a participant’s death, the MDIB rule is ignored. [§1.401(a)(9)-2, Q-3]
6. Changing DB’s: While the participant is alive, it is permissible to add a new Designated Beneficiary or replace an existing one after the RBD. [§1.401(a)(9)-1, E-5(c)]
1. Note, however, that a new beneficiary added to an existing group of DB’s may alter the minimum required distribution calculations in future years. There is no impact on the calculations for the year in which the addition occurs. [§1.401(a)(9)-1, E-5(c)(1)]
1. If the newly added Designated Beneficiary was born before the other members of the group, a larger minimum distribution will be required because the shorter LEF of the new person must be used in the computation.
2. In the event the new beneficiary is not the oldest member of the group, the MRD calculations will continue to be based on the same variables that would have been used had he/she not become a beneficiary.
2. A similar possibility occurs if a new individual replaces someone in a group of DB’s. [§1.401(a)(9)-1, E-5(c)(1)]
1. If that new beneficiary is older than the person he/she replaces and the new beneficiary is also the oldest person in the newly formed group, his/her LEF must be used when calculating minimum distributions in future tax years. The net result will be a larger MRD.
2. In the event the new beneficiary is younger than the person he/she replaces, there is no need to alter the MRD calculations in future years.
3. The MRD calculations will likewise remain the same if the new beneficiary happens to be older than the person he/she replaces but NOT the oldest member of the newly formed group.
3. If a new beneficiary is named after the required beginning date due to the death of the original DB whose LEF was being used in the MRD calculations, the remaining life expectancy of the original calculation-DB will continue to be used in those calculations. [§1.401(a)(9)-1, E-5(e)(2)]
1. This is true even if the new beneficiary’s life expectancy is shorter than the LEF of the deceased DB.
2. There is an exception to this "post-death" rule if the spouse were the original DB and his/her life expectancy were being redetermined each year.
1. In that event, the remaining life expectancy of the deceased spouse reduces to zero in the year following his/her death.
2. However, that glitch is avoided if the life expectancy of the deceased spouse was NOT being redetermined. In the latter case his/her death will be treated as if it were the death of a non-spouse DB.
7. Account Value: The minimum required distribution calculations for a particular year are always based on each account’s balance as of the last valuation date in the preceding calendar year. [§1.401(a)(9)-1, F-5,(a)]

8. Non-DB Status: Naming a charity, partnership, corporation or an estate as a partial or total beneficiary of a separate account within a qualified plan means that at least a portion of the assets will pass to a non-human entity. Without an identifiable human being to receive the proceeds after the participant’s death, it is impossible to establish a life expectancy.
1. Without a beneficiary with a measurable life expectancy, the plan lacks a Designated Beneficiary! [§1.401(a)(9)-1, D-2A & D-5] Hence, the participant is forced to use a single life expectancy from Table V of Reg. §1.72-9 when computing MRD’s. [§1.401(a)(9)-1, D-2A(b)]
2. A qualified plan also lacks a DB if a charity, partnership, corporation or an estate is added as a "new" beneficiary following the participant’s required beginning date. [§1.401(a)(9)-1, E-5(c)(2)]
3. Except in the case of a DB’s death, similar results occur if a plan has no named beneficiary after the required beginning date. [§1.401(a)(9)-1, E-5(c)(2)]
9. Spousal Rollover IRA: Except for required distributions, benefits payable to a surviving spouse as beneficiary of a qualified plan may be transferred to an IRA in the name of that surviving widow(er). This is true regardless of when the participant dies. If handled properly, such a transfer does not create a taxable event. The survivor becomes the owner of the new IRA. Thereafter, he or she is eligible to use all the normal distribution options available to an IRA owner.

Can The Qualified Plan Limit Your Planning Options?

All the distribution planning in the world may be for naught if the plan document blocks the desired implementation. The tax rules and regulations previously cited are contingent, in many ways, on the provisions of the qualified plan. This means your tax and estate planning preferences may not be available through the current trustee. If that is the case, it may be prudent to change trustees while the participant is still alive. Remember that a Designated Beneficiary can execute a trustee-to-trustee transfer between IRA’s and TSA’s to obtain more flexible distribution options or better investment performance. However, that remedy is not available if the assets reside in a pension, profit sharing or stock bonus plan. Of course, a spouse can work around the problem by using a spousal rollover IRA, but even that solution may interfere with the estate plan.

1. When a participant DIES BEFORE THE REQUIRED BEGINNING DATE, the applicability of the five-year rule and its two exceptions depends as much on the plan’s language as it does on the wishes of the beneficiary. (See flow chart on Table 3 entitled "Plan Restrictions Control Postmortem Distribution Options Before The Required Beginning Date") Please note that a qualified plan is allowed to effectively eliminate all the postmortem options available under the tax rules by requiring a complete distribution at some point before the deadline imposed by the Five-Year Rule. This could be a major detriment to advantageous planning for the survivors unless a trustee-to-trustee transfer can be used to reposition the assets to a plan with more liberal provisions.
1. If the plan does not include a provision specifying the method of distribution after the death of a participant, the proposed regulations state that distributions MUST conform to the following rules.
1. In cases where the spouse is the DB, distributions are to be made in accordance with either the "General Exception" or the "Spousal Exception" to the Five-Year Rule. [§1.401(a)(9)-1, C-4(a)(1)]
2. All other cases must adhere to the Five-Year Rule. [§1.401(a)(9)-1, C-4(a)(2)]
2. Under the proposed regulations, a qualified plan may adopt provisions specifying how distributions will be carried out if the participant dies before his/her required beginning date. For example, a plan is allowed to establish one method for a surviving spouse and another for non-spouse beneficiaries. However, there must be a single method covering the distribution of all benefits in each separate account belonging to a participant. Note also that the plan rules may be more restrictive than the tax law. [§1.401(a)(9)-1, C-4(b)]
1. Every beneficiary could be forced to withdraw under the provisions of the Five-Year Rule or before an earlier date.
2. A Surviving spouse might be allowed to use the General Exception or Spousal Exception while all others would be restricted to the Five-Year Rule or an earlier withdrawal deadline.
3. Non-spouse beneficiaries might be permitted to use the General Exception but a spouse would be limited to the Five-Year Rule or an earlier withdrawal deadline.
4. All beneficiaries could be required to use either the General Exception or the Spousal Exception depending on their relationship with the deceased participant. NOTE: This does not present a problem because a beneficiary may always accelerate withdrawals if he/she wants to rapidly drain the account.
3. The plan may allow an election by the participant or their beneficiaries. If such an election is possible, the plan may specify which method of distribution applies if neither the participant nor the beneficiary makes that election. In the event neither party elects a method and the plan fails to stipulate which rule applies, the proposed regulations state that distributions must be made as if the plan contained no option provisions (see #1 above). [§1.401(a)(9)-1, C-4(c)]
1. The election must be made by the earlier of:
1. December 31 of the calendar year in which distribution would be required to commence to satisfy the two exceptions to the Five-Year Rule, or
2. December 31 of the calendar year that contains the fifth anniversary of the participant’s death.
2. As of such date, the election must be irrevocable with respect to the beneficiary and all subsequent beneficiaries.
3. The election must apply to all subsequent years.
2. When a participant DIES ON OR AFTER THE REQUIRED BEGINNING DATE, the "... at least as rapidly as ..." phrase in IRC §401(a)(9)(B)(i)(II) leaves plenty of latitude for qualified plans to foil distribution planning. For example, at one time a well-known discount brokerage firm headquartered in San Francisco required a 100% distribution to all beneficiaries by December 31 of the year following a participant’s death. Thankfully, that restrictive language has been replaced with provisions that mirror the tax code. [Remember, IRC §401(a)(9)(B)(i) does NOT apply to Roth IRA’s because no method is used to compute required distributions before the owner’s death.]
1. While such restrictions may appear to place a firm at a competitive disadvantage, the provisions are so deeply imbedded in their disclosure documents that innocent participants hardly ever stumble onto them. Even knowledgeable practitioners can overlook these minute snags.
2. Another favorite trick of many trustees for mutual fund and life insurance company qualified plans is to offer only certain types of life expectancy determinations in conjunction with the minimum distributions they will automatically send you from their plans. This effectively curtails their administrative workload (overhead expense) and serves to shift the burden of responsibility for more complex calculations back to the participant or his/her beneficiary.
3. There is a labyrinth of possible minimum required distribution alternatives following a death that occurs after the required beginning date. The flow charts on Tables 4A through 4F provide a map that will help you navigate though the maze. To effectively use those tables you must first know if there was a Designated Beneficiary. The next step is to ascertain if that DB was the spouse or a non-spouse. Finally, was a joint or single life expectancy being used to calculate MRD’s before death. With those facts in mind, use the quick references printed in the black tabs near the top of each table to guide you to the proper table. Once on the correct table, look for an oval that accurately fits your case and follow the arrows. SPECIAL NOTE: If your search takes you to a page without an appropriate oval, hunt for a second table with the same black tab quick reference. Remember too, that the absence of a Designated Beneficiary limits your search to Table 4F.
3. When calculating REQUIRED DISTRIBUTIONS DURING A PARTICIPANT’S LIFETIME, a qualified plan may mandate the redetermination of life expectancies. Unfortunately, that requirement will accelerate the recognition of taxable income when a participant outlives his/her spouse. The same negative impact confronts children who receive benefits from a deceased parent’s qualified plan. Proposed Regulation §1.401(a)(9)-1, E-7 sets the ground rules that a qualified plan must follow. Within those guidelines, almost anything is possible -- including the ability to require redetermination of life expectancies. (See flow chart on Table 5 entitled "Plan Provisions Dictate Ability To Redetermine Life Expectancy") [Note: IRC §408A(c)(5)(A) exempts Roth IRA’s from required distributions during the owner’s lifetime.]
1. A qualified plan may adopt rules specifying whether life expectancies will be redetermined under IRC §401(a)(9)(D). [§1.401(a)(9)-1, E-7(b)]
1. The plan can specify that the L.E. of both the participant and spouse DB must be redetermined.
2. Conversely, the plan could stipulate that neither the participant’s nor the spouse’s L.E. may be redetermined.
3. The plan may require the L.E. of the participant to be redetermined even though it does not permit the L.E. of the spouse DB to be redetermined.
4. The plan could also dictate the reverse of "c" above. That is, the L.E. of the spouse DB must be redetermined but the participant’s L.E. may not be redetermined.
2. A qualified plan may allow the participant to elect whether life expectancies will be redetermined under IRC §401(a)(9)(D). [§1.401(a)(9)-1, E-7(c)]
1. Such an election must be made no later than the Required Beginning Date.
2. That election must be irrevocable as of the RBD and must apply to all subsequent years.
3. In the event an election is possible but none has been filed by the RBD, the plan may stipulate whether life expectancy will be redetermined under IRC §401(a)(9)(D). [§1.401(a)(9)-1, E-7(c)]
1. Absent a timely election, the plan can mandate the same options "a" through "d" that would apply if no election were offered.
2. If an available election is not exercised in a timely manner and the plan fails to spell out a required substitute, the single L.E. of the participant (or the joint L.E. of the participant and spouse DB) must be redetermined annually.
4. In cases where a plan is silent about IRC §401(a)(9)(D), the proposed regulations stipulate that the single life expectancy of the participant (or the joint L.E. of the participant and spouse DB) must be redetermined annually. [§1.401(a)(9)-1, E-7(a)]

Conclusions  

The text on the preceding pages provides a reasonable primer to use when beginning to explore the financial and estate planning implications of the required distribution rules under IRC §401(a)(9). Serious students need to go far beyond the limited areas addressed here. The proposed regulations provide a detailed map of the terrain that must be traversed.

An excellent interpretation of the minute details on that "map" is available in Life and Death Planning For Retirement Benefits, 3^rd Edition by Natalie B. Choate, Esq. Ms. Choate has a tremendous depth of knowledge in this subject. Her telephone number in Boston is (617) 951-8817. Her web site is www.ataxplan.com. Another grand master of this subject is Noel C. Ice, Esq. in Fort Worth, Texas. His office telephone number is (817) 877-2885. Mr. Ice has graciously posted the complete text of his 700± page tome entitled Distribution and Estate Planning For Deferred Compensation and IRA Benefits on his web site at www.trustsandestates.net. Both Ms. Choate and Mr. Ice provide forms and sample language to assist members of the legal profession. Links to their web sites are also listed on the page entitled "Other Resources".

ASSORTED PLANNING POINTERS

The following planning pointers illustrate various required distribution issues encountered in typical circumstances. The author welcomes suggested additions.

1. ALWAYS have a beneficiary election on file with the plan administrator regardless of the age of the participant. Whenever possible, the named beneficiary should also qualify as a Designated Beneficiary. This is especially important on or after the RBD because it is not possible to return to DB configuration once an account has lapsed into non-DB status. Without a DB the participant is forced to use Table V rather than the more advantageous Table VI of §1.72-9 when computing MRD’s. If a participant dies before the required beginning date, Designated Beneficiaries usually have more flexibility than non-DB’s. (See item "J" below.)
   
2. If a non-DB is a beneficiary of an income and/or remainder interest, NONE of the beneficiaries will be treated as a Designated Beneficiary, even if the rest of the named beneficiaries would otherwise qualify as DB’s. This is true under all circumstances controlled by §401(a)(9). [§1.401(a)(9)-1, D-2A(b) & E-5(a)]
   
3. When a surviving spouse creates a spousal rollover IRA, be sure to simultaneously establish a Designated Beneficiary. The reasons parallel those stated in "A" and "B" above. If that rollover IRA comes into being after the surviving spouse’s RBD, make certain to specify a primary method for calculating MRD’s under §401(a)(9)(A)(ii) even though it may be necessary to use the applicable divisor of §1.401(a)(9)-2, Q-4(a)(2) to satisfy MDIB rules.
   
4. File an affirmative election with the plan administrator for all qualified plans, including TSA’s, before the RBD telling them the election being made concerning redetermination of the life expectancy factor. E-7(c) of the proposed regulations is silent about how to accomplish that step. Send a written notice to the plan administrator describing the participant’s intentions. State that the election becomes irrevocable on the RBD so it can be amended before that date. Even if that election may not appear to make much difference to the participant, it may be vitally important to the beneficiaries.
   
5. Extra care should be taken if you are considering using an estate, charity, partnership or corporation as a beneficiary. Those four entities do not qualify as a Designated Beneficiary. (See item "B".)
   
6. Avoid naming a participant’s parent as a joint beneficiary with members of a younger generation. If a large age differential exists among beneficiaries, even siblings, split the assets into multiple accounts before the RBD. This will prevent the younger beneficiaries from being penalized by the shorter life expectancy of the oldest beneficiary if death occurs after the RBD. Use non-prorata MRD’s each year to keep the various accounts proportionately balanced.
   
7. Terminally ill participants in corporate qualified plans should seriously consider taking a lump sum distribution so the assets can be rolled over into one or more IRA’s -- especially if there is a non-spouse beneficiary. An IRA will provide the heirs greater flexibility than a pension, profit sharing or stock bonus plan following the participant’s death. Make sure you will not lose valuable medical, dental, life and other insurance coverage if it is necessary to separate from service to become eligible for a lump sum distribution.
   
8. Establish a separate account exclusively for qualified plan assets that will fund gifts to charity. This is important regardless of the participant’s age. (See items "B", "E", "J" and "R".) Remember, the participant will be forced to use a single L.E. when computing required distributions for that account during his or her lifetime.
   
9. The year a participant attains age 70½ is used as the reference year when determining life expectancies. The participant and calculation-DB’s ages on their respective birthday in that reference year dictate what ages to use when ascertaining the initial year’s L.E. factor. This approach holds even for a spousal rollover IRA that is put in place several years after the survivor’s normal RBD. In the latter case, the year that the spouse became age 70½ is the reference year for the new account. Determine the spouse’s age as well as the age of the DB’s named for the spousal rollover IRA on each person’s respective birthday in that reference year. The first required distribution from the spousal rollover IRA is determined as though the method chosen for calculations had been used on an ongoing basis starting in the reference year. [§1.401(a)(9)-1, E-1(a)]
   
10. The spousal exception to the five-year rule in pre-RBD death cases is prohibited if the spouse is not the sole primary beneficiary of a separate account. Assuming the other beneficiaries qualify as DB’s, the spouse and the other beneficiaries could use the general exception to the five-year rule -- provided it is permitted under the plan provisions. If one or more of the other primary beneficiaries do not meet the DB requirements, ALL beneficiaries must use the five-year rule. (See item "B".) [§1.401(a)(9)-1, C-3(a), D-2A(b), D-4(a) & E-5(a)]
    
11. Letter Ruling 9237038 points out that an EXECUTOR for a surviving spouse that dies before making an election to treat the first deceased spouse’s IRA as his or her own IRA cannot make that election for the deceased surviving spouse. In other words, an executor for the second to die cannot carry out a spousal rollover if the surviving marriage partner fails to do so before his or her own death. This results in the loss of valuable tax deferral. Had the rollover to the spousal IRA taken place, the surviving spouse would have been allowed to specify his or her own Designated Beneficiary. Following the death of the surviving spouse, the DB of the spousal rollover IRA would be permitted to compute MRD’s using the METHOD employed for the rollover account. The time period for the latter would have been considerably longer than the one allowed under the METHOD used by the original IRA.
    
12. If a beneficiary decides to use a disclaimer following the death of a plan participant on or after the RBD, read Letter Rulings 9037048 and 9450040. Considering those two letter rulings, it appears that the Service will not treat a disclaiming spouse as "dead" for purposes of §1.401(a)(9)-1, E-8(a). Therefore, the recipient of a disclaimed qualified plan benefit may continue to use the disclaiming spouse’s redetermined life expectancy when computing required distributions from the disclaimed qualified plan. Of course, that life expectancy becomes zero the year following the disclaiming spouse’s actual death. One way to avoid a potential reversal of the Service’s position is to elect NOT to redetermine the life expectancy of the non-participant spouse (NPS). That approach also offers the disclaimer beneficiaries a possible chance to postpone total liquidation of the qualified plan following the subsequent death of the NPS. However, the latter possibility evaporates if the spouse outlives his or her original single life expectancy. (See item "P".)
    
13. If a trust is to be used as a beneficiary for a qualified plan, do so only after a thorough review of the distribution rules for trusts and how they interact with the other estate planning needs. Pay special attention to the possibility that a trust may contain language that prevents it from qualifying under the Designated Beneficiary Rules. Finally, be sure to DELIVER A COPY of the trust instrument, or the substitute documentation specified in §1.401(a)(9)-1, D-7 of the Proposed Regulations, to the plan administrator when filing the beneficiary form and on a timely basis whenever the trust is amended. Be sure to reread the language of §1.401(a)(9)-1, D-5, D-6 and D-7.
    
14. If a QTIP trust is to be used as a beneficiary for qualified plans, peruse Rev. Rul. 2000-2. This new ruling provides specific guidance to insure that such a trust agreement qualifies for the marital deduction. Please note that an executor needs to make the QTIP election under §2056(b)(7) for BOTH the qualified retirement plan or IRA as well as the trust that is named as its beneficiary.   Remember too, a QTIP trust must adhere to all the normal distribution rules for trusts. (See item "M".)    
    
15. Although an irrevocable trust may be named as the beneficiary of a qualified plan, it is permissible to change to a new irrevocable trust as often as necessary to facilitate alterations in the estate plan.
    
16. Married participants often select their spouse as the primary beneficiary for qualified plans and specify a family trust as the contingent. This is not a concern when death occurs on or after the RBD. However, it may cause problems if the participant dies before the required beginning date and the non-participant spouse wishes to disclaim all or a portion of the plan benefits. (See item "L".) While the disclaimer may be valid, one portion (the survivor's trust) of the typical family trust that is named as the contingent beneficiary remains revocable after the death of the first trustor. Proposed Regulation §1.401(a)(9)-1, D-5(b)(2) states that a trust named as the beneficiary of a retirement plan or IRA must become irrevocable on or before the participant's death to satisfy the Designated Beneficiary Rules. Failure to achieve DB status limits distributions to the living trust to the five-year rule described in §401(a)(9)(B)(ii). Please note that some commentators feel that the grantor trust provisions spelled out in IRC §671-679 allow the survivor's trust under these circumstances to overcome the irrevocability clause of the Proposed Regulations mentioned above. In fact, at least one private letter ruling (LTR 199903050) appears to embrace this conclusion. However, the proposed regulations mention no exceptions to §1.401(a)(9)-1, D-5(b)(2). Fortunately, there is one sure means by which a plan participant can preserve his or her survivors' right to use the general exception under §401(a)(9)(B)(iii) when a trust is named as the contingent beneficiary and the surviving spouse is the primary beneficiary. To do so, make the contingent beneficiary the portion of the family trust that becomes irrevocable upon death of the plan participant -- not the whole family trust. That is to say, be specific and name the bypass, credit shelter or QTIP trust as the contingent beneficiary. [§1.401-(a)(9)-1, D-6(a)]
    
17. If the right to receive plan assets passes to a trust upon the death of a participant, the required distributions will eventually exceed the income earnings of the qualified plan. From then on, the trust will be forced to recognize the principal portion of the required distributions as taxable income to the trust. If the trust in turn passes out that principal to the income beneficiary to avoid a potential 39.6% Federal tax rate, the basic purpose of the trust may be compromised. Imagine the uproar that would emanate from the beneficiary of a remainder interest in a credit shelter (bypass) trust or QTIP trust if the surviving spouse, in a second marriage situation, started receiving principal. If a trust needs to be the beneficiary for a qualified plan, be sure the trust defines income and principal as the two words apply to distributions from a qualified plan.
    
18. Beneficiaries of the remainder interest in a bypass or credit shelter trust as well as a QTIP trust may have to wait for the death of the income beneficiary, usually the surviving spouse, before receiving benefits, but that is only a timing issue. The remainder persons will receive something, albeit delayed. Therefore, the life expectancy of the remainder beneficiaries must be considered when deciding the proper L.E. factor to use for MRD calculations during a participant’s lifetime. Furthermore, the spousal exception to the MDIB rule does NOT apply in this situation because there are multiple beneficiaries. [§1.401(a)(9)-2, Q&A-7(b)] Therefore, the applicable divisor must be used to compute required distributions during a participant’s lifetime if a non-participant spouse who is more than ten years younger also serves as the income beneficiary of a DB-trust that is named as the primary beneficiary of a qualified plan. Remember that if a charity or other non-DB has a remainder interest, you have "non-DB status". (See items "B" and "H".)
    
19. A surviving spouse loses the right to transfer a deceased spouse’s qualified plan to a spousal IRA rollover in his/her own name if postmortem withdrawals from the decedent’s plan have been sheltered from the 10% excise tax on pre-59½ distributions under IRC §72(t)(2). [LTR’s 9418034 and 9608042]
    
20. Following the death of a participant, a non-spouse DB may name a beneficiary of his/her own to receive the balance of the participant's account if the original DB dies before withdrawing all the funds. The beneficiary's action does not impact the required distribution calculations. For a prolonged period many IRA custodians and trustees felt that this approach ran contrary to the prohibitions in §1.401(a)(9)-1, E-5(f) concerning post-mortem alteration of the participant's DB. Fortunately, a number of large organizations have recently come to realize that the proposed regulations do allow the DB to name his/her own beneficiary without changing the method used to calculate required distributions. After all, the participant's DB is NOT being altered. LTR 199936052 lends further support to this common sense approach.

PRACTICAL CONSIDERATIONS

Whenever distribution planning is done for IRA's, qualified retirement plans and TSA's, several fundamental concepts continually surface. Tax deferral is usually near the top of the list. Not far behind is the ability to control the timing of taxable distributions. However, the ultimate concern for most participants is seldom a tax matter or even an investment worry. If asked to name what troubles them most about their retirement nest egg, participants usually respond with statements about exhausting their capital base. When pressed further, those individuals often express hope that their beneficiaries will end up with more than Uncle Sam if there is anything left to distribute following death. Fortunately, a number of ways do exist to help alleviate those concerns. Not too surprisingly, good tax planning plays a key role in the process.

The following remarks cover a number of common circumstances that call for prudent distribution planning. The discussion is arranged chronologically. The initial section addresses what should be done if a participant or beneficiary dies before reaching the required beginning date. The second portion covers the election that participants face when they attain age 70½ as well as the estate planning implications of their decision. The final part of the discourse deals with a spousal rollover IRA that is created following a participant's death after his or her RBD.

1. If a beneficiary of a qualified plan dies before the participant has reached his or her RBD, the road to follow is usually smooth and straight. No distributions are triggered by the beneficiary’s death and the status quo will usually suffice for a while. Please note, however, that item number 1 listed below does require immediate attention. The other administrative details can be considered in due course.
1. If the beneficiary that dies shortly before the RBD and that person is the non-participant spouse (NPS), it is prudent to revisit the participant’s recent election concerning what method will control the determination of the life expectancy factor used for calculating required distributions. For example, if the participant has elected to redetermine his or her own L.E. factor each year, it may be appropriate to amend that election so that the life expectancy is NOT redetermined. Such a modification is always beneficial if the couple’s children have become the primary beneficiaries due to the death of one parent.
2. Once the survivor’s emotions have stabilized, it is time to revise the beneficiaries listed with the plan administrator, IRA custodian or TSA trustee. While contingent beneficiary provisions should take care of matters during an interim period, it is now appropriate to look farther down the road.
3. The certainty of succession may now dictate a revision of other estate planning documents. Make sure those new arrangements and the revised beneficiary designations for the qualified plans work in concert with one another vis-à-vis the required distribution rules.
4. The matter of control over the disposition of the deceased spouse’s community property interest in the qualified plans may arise. Happily, that thorny legal issue is beyond the scope of this paper and the knowledge of its author. Nevertheless, the surviving family members as well as their professional advisors need to be attuned to this concern and realize that adherence to §401(a)(9) does not resolve the question.
2. In cases where a plan participant dies before his or her RBD and his or her spouse is the beneficiary, the highway suddenly becomes quite bumpy and full of sharp curves. A spectrum of estate and distribution planning skills will be needed if the survivors wish to avoid an accident and continue their journey. At the very least, the named beneficiary could be forced to withdraw all the funds immediately or follow one of the restrictive distribution provisions outlined at the top of Table 3. Hopefully, the plan documents will allow the beneficiary to follow the liberal path spelled out in tax code §401(a)(9)(B)(iii) or (iv) as outlined on Table 2 of this report.
1. Following a participant’s death, a non-participant spouse (NPS) who is a beneficiary has one remedy not open to others. If the distribution and/or investment options offered by the existing retirement plan are not acceptable, the NPS may execute a spousal rollover of all the qualified plan assets into an Individual Retirement Account of his or her own. While this step is often a foregone conclusion for most laypeople, it should not be the only possibility or concern to pop into the mind of a professional planner.
1. For starters, a surviving spouse may NOT roll over a required distribution. [§402(c)(4)(B)] Under certain circumstances the required distribution may equal the entire balance in the qualified plan. [See LTR 9850016] If so, the rollover option is unavailable.
2. Leaving the assets in the existing plan has a major advantage that may be absent from a spousal rollover. The key is whether or not the existing plan allows an election under the Spousal Exception to the Five Year Rule outlined on Table 2. If it does, a middle-aged surviving spouse who was born about the same time as the deceased participant, would be able to leave the assets in that plan while retaining the ability to withdraw funds at random without tax penalty -- regardless of age. For example, a fifty year old widower DB can withdraw varying amounts of money from the plan at anytime he wishes without being concerned about a 10% Federal excise tax (plus 2½% in California) on premature distributions. That degree of flexibility prior to age 59½ would be absent in any spousal rollover IRA because the surviving spouse is the owner of the new account and is subject to premature withdrawal penalties. Please be alert that leaving the assets in the deceased participant’s qualified plan produces one potential drawback if the surviving spouse avoids the Federal excise tax on a pre-59½ withdrawal due to the death exclusion provided in §72(t)(2)(A)(ii). Once that mandatory exclusion applies to a withdrawal, the surviving spouse may no longer convert the account to his or her own name via a spousal rollover. [LTR's 9418034 and 9608042] Furthermore, he or she will be limited to the use of a single life expectancy factor when it comes time to compute required distributions. (See paragraph B 2 below.)
3. However, distribution flexibility may motivate a surviving spouse to take the opposite approach, i.e., shun the old plan in favor of a rollover IRA. That would be the case if a deceased participant were close to his or her RBD but the surviving husband or wife were considerably younger and able to maintain a comfortable lifestyle without pulling money from the qualified plan. Prolonging the tax deferral by way of a spousal rollover IRA would probably make sense in this case.
2. Whether it is carried out immediately following a participant’s death or shortly before required distributions must be taken from the original plan, a spousal rollover is the only way a surviving spouse will be able to utilize a joint life expectancy factor when computing minimum required distributions. That boon to tax deferral is an irresistible force that eventually leads to a spousal rollover in most cases. Subject to the limitations discussed above, the surviving spouse may execute such a rollover at anytime.
3. By contrast, a non-spouse beneficiary seldom has as much flexibility as a surviving spouse. All is not lost, however, in cases involving the death of a plan participant prior to his or her required beginning date if a non-spouse is the beneficiary. There is some room for post mortem planning that can assist the survivors.
1. If the qualified plan is an Individual Retirement Account or Tax Sheltered Annuity under §403(b), the beneficiary may leave that account with the existing custodian or trustee and begin taking minimum required distributions under the General Exception to the Five Year Rule outlined on Table 2. Please note that this approach is not a rollover to a new owner. The "inherited" account continues to bear the name of the deceased participant but is controlled by the beneficiary. Taxable transactions associated with this beneficiary distribution account reflect the Social Security Account Number of the beneficiary. [Rev. Proc. 89-52]
2. If the beneficiary of a deceased participant's IRA or TSA is displeased with an existing custodian or trustee, that beneficiary may simply request a trustee-to-trustee transfer of the assets to a new IRA or TSA of their own choosing. Presumably, the new account would offer more distribution options and/or higher potential for favorable investment results.
3. Unfortunately, a non-spouse beneficiary is effectively stuck with the decedent’s old pension, profit sharing or stock bonus plan. While this is not always a problem, it can be a very limiting factor. For example, many 401(k) plans will not permit a non-spouse beneficiary to stretch out distributions even though allowed under the income tax rules illustrated on Table 2. PLANNING ALERT: If a terminally ill participant has a sizable balance in a corporate plan with a non-spouse as the beneficiary, serious consideration should be given to shifting those assets to an IRA while the person is alive. That switch will greatly enhance the post mortem planning possibilities. BEFORE implementing this planning alert, however, please read the cautionary comments in Planning Pointer "G".
4. Table 6 presents a fact pattern involving a pre-RBD death with non-spouse beneficiaries. It shows that continued tax deferral provides the heirs with a significant financial reward. Naturally, facts and assumptions will always control the outcome of any financial projection. Remember too that such a projection is not a guarantee of future results. Nevertheless, the idea of tax-deferred accumulation needs to be understood by beneficiaries so they can gauge the value by their own criteria.
1. Table 6 illustrates the results that might be achieved if a pair of forty- year-old twin sisters adopted contrasting means of handling an inherited IRA. Their mother died of cancer a number of years ago. Their widower father, a retired aerospace engineer, perished in an automobile accident last year at age sixty-eight. The twins are listed as equal primary beneficiaries of his $400,000 Individual Retirement Account. For purposes of this illustration it is assumed that their father's estate incurred no Federal estate tax liability.
1. Each sister decides to preserve her respective share of the IRA so the assets will be available at age sixty-five to augment her other retirement capital. Neither sister wants to boost her current income but each recognizes that future circumstances might dictate a need to dip into principal or at least draw off some income for living expenses.
2. Sister #1 lives in a small coastal town in Southern California where competent advice is difficult to obtain. Due to the rural location, Sister #1 and her husband are left to their own resources to determine what to do with her $200,000 share of the IRA. After perusing IRS Publications 575 and 590 they immediately withdraw the funds rather than delay tax consequences for five years. A short while after receiving that distribution, Sister #1 decides to take advantage of a promising investment opportunity she read about in a major financial publication. When preparing the cheque for the new investment, Sister #1 complains to her husband that she has less than two-thirds left to invest after setting aside enough to pay the large tax bite on the distribution from her father's IRA.
3. Sister #2 is a bit more fortunate. By living in a major metropolitan community in Northern California she has little trouble seeking professional help and benefits from thorough distribution planning by a team of skilled specialists. Those experts advise Sister #2 to leave her $200,000 share in the existing IRA. They allow her to change the investment so it matches the one used by her sister. However, the professionals stipulate that before year's end Sister #2 must commence a series of minimum withdrawals over her life expectancy. (See the General Exception to the Five-Year Rule shown on Table 2.) They urge her to leave the undistributed balance inside the IRA so it may continue to compound tax-deferred. The advisors further suggest that she reinvest the after-tax portion of the annual distributions in a private account using the same investment utilized within her father's old IRA. The combined Federal and California net top-dollar tax bracket for Sister #2 and her husband is the same as the rate paid by their Southern California relatives.
2. It is not surprising to see that Sister #2 accumulates considerably more money than her twin sibling does by age 65. Remember that the tax and investment parameters are identical for both sisters. The only difference is Sister #2’s use of the tax-deferred "inherited" IRA. When the results are reported on Table 6, however, everything is converted to an AFTER-TAX position for both sisters. The black dots for each year along the line for Sister #2 assume that she cashes out whatever balance remains in the "inherited" IRA that year, pays taxes on the distribution and adds the residual to the accrued balance in her outside accumulation account. Every year that combined total compares quite favorably with the outcome achieved by her less fortunate sister.
3. When reviewing Table 6, keep in mind that Sister #2 is free to withdraw from her father's old IRA at anytime without tax penalty. The only tax limitation deals with minimum withdrawals each year. This means Sister #2 is able to take advantage of prolonged tax deferral while maintaining just as much liquidity as her Southern California sister.

Distributions At Age 70½ and Beyond

One of the primary concerns facing most participants that are on the brink of reaching their Required Beginning Date focuses on what to do about minimum required distributions. Loosely translated, that worry says, "What must I do to comply with this complex law, and how can I minimize the taxable distributions I must start receiving when I turn age 70½?" Seldom do participants equate their anxiety with estate planning. Yet, the post mortem disposition of their plan assets will be strongly influenced by how they choose to compute their MRD’s. Of course, participants can drive around this large pothole by withdrawing 100% of their account balance before the Required Beginning Date. Barring such a drastic step, clients face several choices.

1. Participants without a Designated Beneficiary on their required beginning date are limited to one decision, assuming their qualified plan has not already made the selection for them. [See Table 5] Does the client want to redetermine his or her life expectancy each year when computing minimum required distributions?
1. A participant that wishes to minimize required distributions will usually choose to redetermine life expectancy because that approach produces a smaller taxable withdrawal each year during his or her lifetime.
1. Naturally, the smaller the annual required distribution the greater the balance left in the qualified plan.
2. Redetermining the life expectancy (L.E.) factor has the added advantage of allowing distributions to continue if the participant lives past his or her expected longevity. Effectively, the client cannot outlive the income stream from the qualified plan.
3. If redetermination is used, the L.E. factor for the first year is the same one utilized by the fixed-period method discussed in the next paragraph. Therefore, the required distribution for the first year is identical under both methods. With redetermination, however, the L.E. factor drops by less than one full year for each year the participant lives past age 70½. An example of the calculation is shown on Table 1A.
2. Not redetermining the participant’s life expectancy factor is sometimes described as the fixed-period or straight-line method. Following the initial distribution year, the L.E. factor used for that original year is reduced by one full year for each elapsed year since age 70½. An example of the calculation is shown on Table 1B.
1. A straight-line decline in the life expectancy factor means that the L.E. factor reaches zero at the end of the fixed-period. Mathematically, that method produces a progressively larger distribution of the plan assets than would occur using redetermination.
2. Furthermore, all plan assets must be distributed by the end of the life expectancy period if the L.E. factor is not redetermined. That means nothing will remain in the account if a participant outlives the life expectancy table.
3. Table 7A provides a visual comparison of the two methods discussed above. That table reports the balance remaining in a qualified plan each year starting at age 70½ depending on whether or not a participant chooses to redetermine the life expectancy factor when calculating minimum required distributions. When viewing Table 7A, please be sure to peruse the assumptions and cautions listed on the bottom of the table in order to gain a complete understanding.
1. The dotted line connecting the diamonds depicts the account balance each year if life expectancy is allowed to decline on a straight-line basis over a fixed-period. Note that the account is depleted in the sixteenth year.
2. By contrast, the solid line with the stars on Table 7A shows that two-thirds of the original balance remains in the plan if the participant has been redetermining life expectancy. At age 100 he or she still has a bit left in the account. Naturally, both lines would show different outcomes if the earnings assumption were changed.
4. If income tax considerations during the participant’s lifetime were the sole determinant, the analysis would conclude at this point. However, estate planning questions will not allow us to pull off the highway into a rest stop just yet. In fact, a participant that fails to consider the ultimate disposition of his or her qualified plan is shirking an important responsibility. Although this discussion assumes that the qualified plan lacks a Designated Beneficiary, there will always be a named beneficiary for the plan even if the latter is merely the participant’s estate. In fact, the beneficiary could be a relative or friend that was named as beneficiary after the qualified plan slipped into non-DB status.
1. A participant that opts to redetermine life expectancy will force the named beneficiaries to remove 100% of the account balance by December 31 of the year following the participant’s death. Such a requirement could generate a gigantic tax liability for the heirs. Furthermore, the latter have no ability to control the timing of the taxable event.
2. On the other hand, a decision to reduce the life expectancy factor on a straight-line basis allows beneficiaries to complete the minimum distribution pattern after the participant’s death. That means, for example, the heirs could continue MRD’s for another ten years if a participant died after living only six years of the sixteen year life expectancy he or she had at age 70. The tax deferral and timing aspects of such a possibility would be quite attractive.
3. Table 7B illustrates the concepts outlined in the two previous paragraphs. That table includes all the assumptions and cautions used to create Table 7A. Table 7B also uses the same symbols and legend to represent the contrasting methods for computing required distributions. However, Table 7B assumes that the participant dies during the sixth year of required distributions. That is to say, death occurs at age 75. If he or she died earlier or later, the solid line with the stars would fall to zero the year following the revised year of death rather than at the spot plotted on the table. That adjustment would be necessary in order to reflect the fact that beneficiaries of an account using a redetermined L.E. factor are forced to make a complete withdrawal following the year of death. In contrast, beneficiaries of an account using a fixed-period method of determining life expectancy may continue withdrawals over the remaining balance of the participant’s original fixed-period.
2. Participants using a Non-Spouse as the Designated Beneficiary are allowed to make two choices when they attain age 70½, assuming the provisions of their IRA, qualified retirement plan or TSA have not already made the selections for them.
1. The first option is identical to the one facing participants without a BD. That is to say, does the owner of the plan want to redetermine his or her life expectancy each year? Discussion of this point follows the same decision process outlined above for participants that fail to have a BD, including the material shown on Table 5.
2. The second consideration focuses on whether to use a single L.E. factor for the participant alone or a joint and last survivor life expectancy factor in conjunction with his or her DB.
1. The latter is the automatic default in the Code and Proposed Regulations, provided there is a Designated Beneficiary for the qualified plan. [§401(a)(9)(A)(ii) and §1.401(a)(9)-1, D-2A(b)] However, it is possible for the plan provisions to specify the use of a single life expectancy factor. Only a careful reading of the plan document will tell you if a single L.E. factor is required. If not, a joint life expectancy factor is valid.
2. Use of a joint L.E. factor has noticeable financial and estate planning advantages. It allows greater tax deferral for the participant as well as the beneficiaries. On the other hand, a single L.E. factor forces the participant and his or her beneficiaries to accelerate their income tax recognition because the qualified plan distributions will be considerably larger due to a shorter payout period.
3. Table 8A graphically displays the balance remaining in a qualified plan based on the four methods of determining life expectancy if a non-spouse is the DB.
1. The lines on this table connecting the stars and diamonds are the same as those on Table 7A that depict the results using only a single life expectancy. That is to say, the solid line running between the stars shows the balance remaining in the qualified plan each year if a redetermined single life expectancy is used to compute required distributions (Single Redetermined). The dotted line with the diamonds reports the results if only a single life expectancy is used for a fixed period (Single Fixed-Period).
2. The solid line on Table 8A that connects the black circles reflects the balance remaining in the qualified plan each year if a joint life expectancy method is used that redetermines a 70-year-old participant's life expectancy but not that of a 67-year-old non-participant DB. Note that the calculations for determining the joint life expectancy factor in this example are identical to those used by a married couple under the Hybrid Method.
3. The dashed line that joins the triangles on Table 8A represents the balance remaining in the account each year if a joint life expectancy is used over a fixed-period with a 70-year-old participant and a 67-year-old non-spouse DB (Joint Fixed-Period).
4. A quick glance at Table 8A confirms that a fixed-period distribution method forces a full liquidation at some point regardless of whether a single or joint L.E. factor is utilized. This is the same problem that appears on Table 7A. The zero point merely moves farther down the road when using a joint life expectancy. However, a joint L.E. factor enhances the outcome even more for participants that redetermine the participant’s life expectancy.
4. The first footnote on Table 8A should not be overlooked. The lines on the table would differ if the DB were older or younger than age 67. However, the pattern of those lines would remain the same unless the MDIB Rule applies to the case.
1. It is important to remember that the MDIB Rule places an artificial limitation of ten years on the age-spread between a participant and a younger non-spouse designated beneficiary. The same rule holds true if the participant’s spouse happens to be more than ten years younger than the participant and he or she is the oldest among several DB’s. That fact pattern often arises when a bypass or QTIP trust is named as the beneficiary of a qualified plan. [§1.401(a)(9)-2, Q-7(b)]
2. If the first assumption on Table 8A were changed so that the designated beneficiary becomes a child that is twenty-five years younger than the participant, the MDIB Rule will apply. The "applicable divisor" mandated by the MDIB Rule simplifies calculations during the participant’s lifetime and produces only one line regardless of which joint life expectancy method is elected by the participant. The dashed line with the solid squares on Table 8AA shows the balance remaining in the qualified plan each year as a result of the MDIB Rule under the modified fact pattern. The other two lines on Table 8AA are identical to their twins on Table 8A. Please remember that only three lines are possible on Table 8AA.
5. The estate planning implications that arise from having a non-spouse as the Designated Beneficiary closely parallel the earlier discussion of non-DB status as illustrated on Table 7B. However, several additional elements do enter the picture when a joint life expectancy factor is used.
1. An election to reduce the joint life expectancy factor on a straight-line basis over a fixed-period produces the same post mortem options outlined above when a single L.E. factor is used. That is to say, the beneficiaries may complete the remainder of the original (joint-life) distribution period existing at the time the participant dies.
2. When the participant’s life expectancy is being redetermined annually, use of a joint L.E. factor may eliminate the need to flush out the account in the year after the participant’s death.
1. Instead of liquidating 100% following the participant’s death as is true whenever a single redetermined L.E. factor is used, the BD may continue withdrawing MRD’s over the remaining period of his or her own life expectancy. [§1.401(a)(9)-1, E-8(b)] Unfortunately, this opportunity evaporates whenever the Designated Beneficiary has no remaining life expectancy at the time the participant dies. In other words, a beneficiary must withdraw all the funds by the end of the year following the year of the participant’s death if the participant outlives the DB’s single life expectancy. Please note, however, that such a scenario is rather unlikely when the MDIB Rule is in effect. [See paragraph 5 c below for a discussion of the estate planning implications whenever the MDIB Rule comes into play.]
2. Table 8B illustrates the variables addressed in the preceding narrative assuming the participant dies in the tenth year of required distributions (age 79). The symbols, lines and legend as well as the other assumptions are identical to those same features on Table 8A. That is to say, the solid line running between the stars shows the balance remaining in the qualified plan each year if a redetermined single life expectancy is used to compute required distributions (Single Redetermined). The dotted line with the diamonds reports the results if only a single life expectancy is used for a fixed period (Single Fixed-Period). The solid line that connects the black circles reflects the balance remaining in the qualified plan each year if a joint life expectancy method is used that redetermines the participant's life expectancy but not that of the non-spouse DB. The dashed line joining the triangles represents the balance remaining in the account each year if a joint life expectancy is used over a fixed-period (Joint Fixed-Period). Please remember that a different year of death for the participant would alter the values represented by the various lines on Table 8B.
3. In cases involving the MDIB Rule, the likelihood of a participant outliving the DB’s single life expectancy is seldom a concern, especially if it is a child that is twenty-five years younger than the participant. Therefore unless precluded by the terms of the qualified plan, beneficiaries will probably be eligible to stretch out post mortem distributions for a prolonged period. This stretch-out is in addition to the significant tax deferral facilitated by the "applicable divisor" used for computing required distributions during the participant’s lifetime.
1. Beginning the year following the death of the participant, the MDIB Rule drops by the wayside. Instead, required distributions are computed using the primary method under §401(a)(9)(A)(ii) that would have applied to the participant prior to his or her death had the MDIB Rule not been activated by the large age spread between the participant and DB. [§1.401(a)(9)-2, Q&A-3]
2. The dynamics of switching from the MDIB Rule to the primary method following a participant’s death is illustrated on Table 8BB. The extra stretch-out of required distributions is especially favorable for estate planning purposes. Please note that this table uses the same symbols, lines and legend as Table 8AA to represent the contrasting methods for computing required distributions. Furthermore, it incorporates the same assumptions and cautions. However, Table 8BB assumes that the participant dies during the tenth year of required distributions. That is to say, death occurs at age 79. The difference in the two lines following that death is due to the participant's election of a primary method prior to his or her Required Beginning Date. Please remember that a different year of death for the participant would alter the values represented by the various lines on Table 8BB.
3. When a spouse is the Designated Beneficiary, the participant’s list of possible methods for determining the proper life expectancy factor totals six. Once again a participant must peruse the provisions in each plan document to be certain he or she is free to select from all the options provided in the tax rules.
1. Although a qualified plan’s provisions may force a married participant to use a single life expectancy when computing MRD’s, such a requirement is seldom encountered. In the event plan provisions dictate this approach, the discussion points presented on previous pages would apply. Otherwise, a joint life expectancy factor is assumed as long as the non-participant spouse is the Designated Beneficiary of the qualified plan.
2. Whether or not it is desirable to redetermine a married participant’s life expectancy is the second decision point. The reasoning follows the same line of thought visited several pages ago.
3. The new entry on the list of variables concerns the benefit of redetermining the spouse’s life expectancy. Remember that when a non-spouse is the DB, this choice is unavailable. Only the L.E. factor of a non-participant spouse serving as the Designated Beneficiary may be redetermined. If selected, the mathematical process is identical to the one used when a participant’s L.E. factor is redetermined.
4. Combining the variables outlined in the last three paragraphs, six possible methods arise for determining the appropriate life expectancy factor whenever a non-participant spouse serves as a qualified plan’s Designated Beneficiary.
1. Single life expectancy for a fixed period (Single Fixed-Period).
2. Redetermined single life expectancy (Single Redetermined).
3. Joint life expectancy for a fixed period (Joint Fixed-Period).
4. Joint life expectancy redetermining BOTH spouses (Dual Redetermined)
5. Joint life expectancy redetermining only participant (Hybrid Method).
6. Joint life expectancy redetermining only non-participant spouse (Reverse Hybrid).
5. While entry "f" on the preceding list is permissible under Proposed Regulation §1.401(a)(9)-1, the author has yet to encounter a circumstance in which it would be the most appropriate choice. Please note that when planning practitioners and authors of technical journals mention the Hybrid Method, they seldom, if ever, stipulate which hybrid technique serves as their reference. Invariably, they mean entry "e" on the list above. Throughout this paper, the expression Hybrid Method refers to a joint life expectancy created by redetermining only the participant’s L.E. factor. This approach maintains continuity for a reader who might encounter the same phrase in other literature.
6. Among the six methods a married participant could use to determine the life expectancy factor for computing required distributions, only three are worthy of consideration. Please disregard the Reverse Hybrid approach for the reasons mentioned above. Similarly, ignore both methods that utilize a single life expectancy. They provide no advantage during a participant’s lifetime and reduce post mortem planning possibilities for the heirs. If a participant wants to accelerate lifetime withdrawals, the prudent choice is to make distributions in excess of the minimum computed by using a joint L.E. factor.
1. The graph on Table 9A shows the balance remaining in a qualified plan using the three methods of determining joint life expectancy that ought to be considered by a married participant. Please peruse the assumptions and cautions listed at the bottom of that table. Modifying one or more of those assumptions could alter the position of the lines and, hence, influence an observer's conclusion.
1. Make a mental note that the solid line with the black circles representing the Hybrid Method on Table 9A follows a path that is similar in shape to the line on Table 8A with the same features. After all, the Hybrid Method for married couples involves the same calculations required when a participant with a non-spouse DB uses a joint L.E. factor and redetermines his or her own life expectancy. Note also that on Table 9A the assumed ages of the participant and spouse DB are identical while on Table 8A the non-spouse Designated Beneficiary is three years younger than the participant.
2. For the same reason, the dashed line joining the open triangles on Table 9A that depicts a married couple’s use of a joint life expectancy over a fixed-period follows a trajectory that closely mirrors the line on Table 8A with similar markings.
3. The results of redetermining the life expectancy of both spouses appears on Table 9A as open squares joined by a dashed line.
2. A cursory glance at Table 9A is likely to lead a reader to conclude that Dual Redetermined is the best choice. In fact, the table confirms the notion that the smaller annual distributions stipulated under the Dual Redetermined approach enhance accumulations inside a qualified plan. Of course, those skimpier distributions also mean less taxable income to report each year.
3. Unfortunately, there is a potential danger lurking down the road whenever a married couple opts to redetermine both life expectancies.
1. For starters, please note that Table 9A is built on the assumption that neither spouse dies until after age 100. In the event that scenario proves to be correct, the Dual Redetermined method is superior to the other options. However, the author has yet to find a married couple that thought they would both live to become centenarians.
2. If the non-participant spouse (NPS) dies first, his or her remaining life expectancy becomes zero in the year after death. Effectively, this forces the participant to use a single life expectancy factor from that point forward. While no one wants to believe his or her mate will predecease them, the harsh reality revealed in mortality tables contradicts that human fantasy.
3. Further compounding the planning process is an accepted "fact" in our society that a woman will outlive her husband. Unfortunately, that is a potentially dangerous misconception that runs counter to empirical evidence. Therefore, it is important to keep in mind the brief summary of statistical probability contained in the next paragraph -- regardless of the participant's gender.
4. In cases where a participant and NPS are both age 70 in the same year, there is a 34% chance that the wife will predecease her husband. If the wife were 65 and the husband 70, the woman has a 23% statistical probability of dying first. When a wife is five years older than her 70-year-old husband, the woman will predecease him 47% of the time. [Michael L. Vorkapich, a pension actuary and personal friend, provided these values after perusing the 1983 Group Annuity Mortality Tables for males and females. He can be reached at mike@reliantpension.com.]
5. For a discussion of the considerations involved when a married participant dies first, please peruse a subsequent section of this paper entitled "Spousal Rollover Following Post-RBD Death of Participant".
4. Table 9E graphically reports what happens to a qualified plan balance if a non-participant spouse serving as the Designated Beneficiary dies in the fourth year of required distributions. Please observe that the plots for the Hybrid Method and Joint Fixed-Period do not vary from their positions on Table 9A. However, the line for the Dual Redetermined method drops below the other two. This eliminates the advantage of tax-deferred accumulation the participant originally expected he or she would receive that method. Naturally, using different age assumptions and dates of death for the non-participant spouse might lead to varying outcomes. For example, death of the same non-participant spouse anytime after the ninth year of required distributions leaves the dashed line connecting the squares above the other lines. The latter observation reflects the results shown on several graphs that are not reproduced with this report.
5. However, the largest disincentive associated with the Dual Redetermined method occurs following the death of a participant whose non-participant spouse predeceased him or her. In the year following that second death, the entire balance in the qualified plan must be distributed to the beneficiaries and reported as taxable income. No stretch-out or tax deferral is possible. Table 9F provides a graphic representation of the outcome. It is a continuation of the fact pattern assumed on Table 9E. Please note that the dashed line with the squares representing Dual Redetermined method goes to zero in the year immediately following the year of the participant’s assumed death.
6. If it were possible to know in advance the sequence and timing of a married couple’s deaths, the uncertainties of distribution planning would be eliminated. Absent that degree of clairvoyance, married participants need to work their way through a somewhat complicated decision process that uses Table 9A as a starting point. Now that it has been shown that redetermining both life expectancies has undesirable side effects, does another option shown on Table 9A represent a reasonable alternative?
1. A closer examination of Tables 9A and 9E reminds readers that the line representing a fixed-period joint life expectancy (dotted line connecting diamonds) must reach zero at the end of the Joint Fixed-Period. While that may not appear to be a flaw in the mind of young observers, it definitely rings bells among seniors. Probably the number one financial concern voiced by members of the latter age group is a desire to maintain their independence and avoid becoming a burden to their relatives or children. Seniors grow apprehensive whenever they see a chart showing that a significant block of their investment portfolio could evaporate before they die. While a strong case can be made in support of electing a Joint Fixed-Period, most participants approaching their Required Beginning Date will shy away from that option.
1. Before dismissing the Joint Fixed-Period method as worthless, please peruse Table 9F. That graph demonstrates the viability of Joint Fixed-Period in cases where both spouses are terminally ill or their deaths can be reasonably expected to occur in the 70’s.
2. Using a Joint Fixed-Period also makes sense in advanced estate planning situations when the NPS will not be able to execute a spousal rollover after the participant dies because a trust is named as beneficiary of the qualified plan.
2. Fortunately, Tables 9A, 9E and 9F provide a third alternative. It is the solid line joining the black dots. Based on the assumed facts stated at the bottom of each graph, that line represents the expected results under the Hybrid Method if only the participant’s life expectancy is redetermined. Note that the line’s location is identical on both Tables 9A and 9E. The duplication is due to the fact that Hybrid Method calculations remain the same during a participant’s lifetime if the non-participant spouse predeceases the participant. For that reason the Hybrid Method provides superior results if the NPS dies during the early years of required distributions. In fact, studies not included with this report indicate that the Hybrid Method maximizes the qualified plan balance if a same-age non-participant spouse dies anytime before the tenth year of required distributions. Naturally, a younger or older NPS might alter the outcome.
1. Please note that the solid line with the black dots does NOT produce the most favorable results on Table 9F. On that table it is assumed the participant dies shortly after the "early" death of the NPS. Hybrid Method calculations change in the year following the year of the participant’s death because the latter’s redetermined life expectancy has become zero. (See the right side of the flow chart on Table 4A for more details.) All that is left for the beneficiaries to use in the years following a participant’s death is the original single L.E. factor of the NPS minus the number of elapsed years. Note also that if the participant dies after all the years have elapsed from the original single L.E. factor of the NPS, everything must be withdrawn from the qualified plan in the year following the participant’s death.
2. In summary, Table 9E demonstrates that the Hybrid Method may produce superior results for the participant based on certain assumed facts if the NPS is the first to die. Table 9A shows that the Hybrid Method is the second best choice if both spouses are long-lived. Table 9F illustrates that the Hybrid method can be relatively effective in maintaining tax deferral if both spouses die shortly after commencing required distributions. Unfortunately, the Hybrid Method does not show the most favorable outcome under all circumstances. At best, it is a compromise solution to a vexing question. Typical of all compromises, the Hybrid Method produces acceptable or favorable results under many scenarios, but not in every case.
7. While reading the preceding paragraphs it becomes apparent that a married participant of a qualified plan will find him or herself in a quandary at age 70½ because there is no clear-cut answer as to which highway is best to follow. That dilemma raises the question, "What can a participant do to facilitate tax deferral during his or her lifetime and simultaneously allow the heirs to stretch out any residual balance?" Not surprisingly, several steps are worthy of consideration, but none provide a perfect solution.
1. The major drawback to using either a Joint Fixed-Period or the Hybrid Method to arrive at a L.E. factor is that they produce larger required distributions than if both life factors are redetermined. Those accelerated withdrawals deplete the account balance faster than with the Dual Redetermined approach. Hence, tax recognition occurs sooner and less remains in the qualified plan to pass along to beneficiaries.
2. Fortunately, there is no requirement to consume every penny of the incremental difference in annual MRD’s. After all, a participant that elects the Dual Redetermined method willingly agrees to take, and perhaps spend, the least amount possible from the qualified plan each year. If either of the other methods were selected, a larger required distribution would occur annually after the initial year. By depositing the after-tax residual of those "extra" periodic distributions in a private account, a substantial sum would accumulate. If that private accumulation were coupled with the balance remaining in the qualified plan, the combined total would go a long way toward matching the results obtained by a married couple that decided to simply redetermine both life expectancies.
1. Table 10C shows the outcome of the combination plan outlined in the preceding paragraph. The graph plots the total net value AFTER ALL INCOME TAXES tha