When Employee Dies Before Required Beginning Date
Determination Of Designated Beneficiary
Determination Of Life Expectancy
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Copyright© 2001 Denver Tax Software, Inc. All Rights Reserved
This pertains to proposed Treasury Regulations [§1.401(a)(9)-0 through
1.408-8] as printed in the Federal Register on 1/17/2001.
DCY - Distribution Calendar Year
The Minimum Required Distribution for a DCY is determined, in part, by
using the Benefit (balance) from the preceding December 31. Generally, the
Minimum Required Distribution for a DCY must be made by December 31 of the
DCY. In the case of the first DCY, the Minimum Required Distribution must
be made by April 1 of the subsequent year.
E.g., the Minimum Required Distribution for DCY 2001, in general, would
be made no later than December 31, 2001. However, if the employee turned
70½ in DCY 2001, the first required distribution must be made no later
than April 1, 2002. The Benefit used to compute the Minimum Required
Distribution would be the account balance on December 31, 2000.
MRD – Minimum Required Distribution
The Benefit is simply the account balance on the December 31 before the
RBD – Required Beginning Date
This is April 1 after the calendar year when the employee turns 70½.
The IRA owners as well as pension recipients are termed employees in
the regulations and in this document.
These rules go into effect "…for calendar years beginning on or
after January 1, 2002." However, they may be used "…for
calendar years beginning on or after January 1, 2001." I think this
means that the regulations go into effect for Distribution Calendar Year
2002, but you may use them for Distribution Calendar Year (DCY) 2001.
The way I read this, these new regulations would not apply the DCY
2000, even if the Required Beginning Date is 4/1/01. I am not 100% sure on
When Employee Dies Before The RBD – Timing
- One option is to distribute the account no later than the year that
contains the 5th anniversary of the death. Thus, if
employee died on 1/1/02, the distributions may be satisfied if made by
- Another option for nonspouse beneficiaries would be to
commence distributions "…on or before the end of the calendar
year immediately following the calendar year in which the employee
died. This rule also applies to the distribution of the entire
remaining benefit if another individual is a designated beneficiary in
addition to the employee’s surviving spouse." Thus, if
the employee died in 2001, distributions must begin in 2002.
- For spousal beneficiaries. The first distribution should be
the later of
- On or before the end of the calendar year immediately
following the calendar year in which the employee died; and
- "The end of the calendar year in which the employee would
have attained age 70½." Thus, if the employee died in
1999, but would have turned 70½ in 2002, the spouse must make
the first distribution from the employee's account no later than
December 31, 2002. However, if the employee had lived, the RBD
(and first required distribution) would have been April 1, 2003.
- The surviving spouse dies before distributions have begun.
Use the above rules, but use the surviving spouse's date of death
instead of the employee's date of death.
Determination Of The Designated Beneficiary
The old proposed regulations indicated that the designated beneficiary
must be specified by the RBD. The new proposed regulations
[§1.401(a)(9)-4] states that "…the employee’s designated
beneficiary will be determined based on the beneficiaries designated as of
the last day of the calendar year following the calendar year of the
employee’s death." This is a major simplification.
Determination Of Life Expectancy
During The Employee's Life
In general, the old MDIB table is the new life expectancy table,
If the spouse is the sole designated beneficiary, use the longer of the
distribution period determined in accordance with the old MDIB rules or
the joint life expectancy of the employee and spouse using the employee’s
and spouse’s attained ages as of the employee’s and the spouse’s
birthdays in the distribution calendar year. [§1.401(a)(9)-5 A-4(b)].
Employee Dies On Or After RBD
The life expectancy could be either –
- Use the life expectancy of the designated beneficiary. For
nonspouse beneficiaries, use that beneficiary's life expectancy
in the year of the employee's death and subtract 1 from that for
each subsequent year [§1.401(a)(9)-5 A-5(c)(1)]. For spousal benefiaries, during the spouse's life time, look up the life
expectancy for the spouse each year. After the spouse has died,
use the life expectancy in the year of the spouse's death, and
subtract 1 from that for each subsequent year [§1.401(a)(9)-5
A-5(c)(2)]. It appears like Table V should be used here; or
- If there is no designated beneficiary, use the employee's
remaining life expectancy determined as if the employee were
still alive for the year of death, and subtract by one for each
subsequent year. [§1.401(a)(9)-5 A-5(c)(3)]. It looks like the
year of death life expectancy should be determined by Table V.
Employee Dies Before RBD
Use the life expectancy of the designated beneficiary. For nonspouse
beneficiaries, use that beneficiary's life expectancy in the year of the
employee's death and subtract 1 from that for each subsequent year
[§1.401(a)(9)-5 A-5(c)(1)]. For spousal benefiaries, during the spouse's
life time, look up the life expectancy for the spouse each year. After the
spouse has died, use the life expectancy in the year of the spouse's
death, and subtract 1 from that for each subsequent year. It looks like
Table V should be used when a life expectancy needs to be determined by in
the year of death for nonspouse beneficiaries, and each year for spousal
beneficiaries. [§1.401(a)(9)-5 A-5(c)(2)].
Life Expectancies – General Rule
Use the same tables, Tables V and VI, as before these proposed
regulations. [§1.401(a)(9)-6 A-5(a)].
Can those with Required Beginning Dates of 4/1/01 use the new proposed
regulations for that distribution? I think the answer is no.
Joint Life Expectancy
The term "joint life expectancy" is used in §1.401(a)(9)-5
A-4(b). I assume that Table VI is to be used to determine the life
expectancy in the first DCY. For subsequent years, does one return to the
table using the old Recalculation rules, or does one subtract one from
each subsequent year using the old Non-Recalculation (sometimes called
Term – Certain) method? I think the new proposed regulations indicate
that Table VI should be used to determine the life expectancy each year.
Thus, these life expectancies would be the same as the old proposed
regulations joint with both recalculating each year.
Life Expectancy After The Employee's Death When There Is A Nonspouse
For the year of death, use the nonspouse designated beneficiary's life
expectancy [§1.401(a)(9)-5 A-5(c)(1)]. I am guessing that Table V would
be used to determine that year's life expectancy.
Life Expectancy After The Employee's Death When There Is No Designated
§1.401(a)(9)-5 A-5(c)(3) indicates that in the year of death to use
2001 Distribution Calendar Year
Compute the Minimum Required Distribution using the old and new rules
for DCY 2001. Use the computation that you prefer to use.
The MRD will be lower in most cases if the employee is alive.
The MRD, using the new proposed regulations, could easily be higher if
the employee has died.
There is a possibility that more recent mortality tables might be used
in the determination of life expectancies. This might increase life
expectancies longer than those in these proposed regulations.
Considering that President Bush may be more inclined to help those that
might be interested in minimizing the Required Minimum Distributions, it
would not surprise me if the new administration might modify these