Retirement plan distribution final regs.

• Author: Day, Susan

The final regulations (TD 8987) for retirement plan required minimum distributions (RMDs) build on the 2001 proposed regulations by updating the life-expectancy tables to reflect increased longevity, permitting smaller RMDs for increased tax deferral. The distribution period for IRA owners assumes the beneficiary is 10 years younger than the owner. If the sole beneficiary is a spouse more than 10 years younger, the distribution period is based on a joint life expectancy. The regulations contain planning opportunities and should be considered for all affected clients, including beneficiaries who inherited since 1997.

If no designated beneficiary exists, the RMDs will depend on whether the date of death (DOD) is before or after the required beginning date (RBD) for distributions. If an IRA owner dies on or after the RBD, the owner's single-life expectancy must be used. If he or she dies before that date, the entire account must be distributed by the end of the fifth year following the year of the owner's death.

Finally, if the designated beneficiary is older than the IRA owner and the IRA owner dies after the RBD, the beneficiary can use the IRA owner's life expectancy instead of his or her own.

Planning for Estate Administrators

The final regulations modify and clarify the proposed regulations.

Postmortem planning. With a few exceptions, the designated beneficiary is determined based on the beneficiaries on record as of the DOD, who remain beneficiaries as of the following September 30 (the proposed regulations' deadline was December 31 of the year following the year of death.) This rule offers postmortem planning opportunities for an account with non-qualifying beneficiaries. For example, if an IRA account's beneficiaries include a charitable beneficiary and an individual, the individual will be treated as sole beneficiary if the charity receives its share of the account by September 30 of the year following the year of death.

Multiple beneficiaries. An IRA account with multiple beneficiaries must be divided into separate accounts by December 31 of the year following the year of the owner's death, to avoid using the oldest beneficiary's life expectancy for all future distributions. If the beneficiaries split an account, they could each use their own life expectancy to calculate their required distributions. According to the final regulations, the account can be split as late as December 31 of the year following the year of death.

Trusts...