Calculating Minimum Distributions
 
March 17, 2004
 

The theory behind the IRA minimum distribution rules is that tax-favored retirement plans are intended to supplement an individual’s retirement not to create wealth for the next generation. When Congress enacted IRC Sec. 401 (a)(9), it compelled certain minimum required distributions beginning at age 70½. Failure to take the required minimum distribution results in a penalty of 50 percent of the amount that was under-distributed.

The IRS–proposed regulations were made final on April 16, 2003, and took effect on January 1, 2003. The rules apply to “individual account plans,” including money purchase pension plans, profit sharing plans, 401(k) plans, 403(b) plans and IRAs. If benefits are paid from an annuity, different rules apply.

The following table summarizes the minimum Required Beginning Date (RBD) when a plan participant dies before or after his RBD.

Beneficiary Type	Death Before RBD Payments Begin	Death after RBD Payments Begin	Life Expectancy (where applicable)
Spouse	Later of 12/31 of year following death or year participant turns 70½. Rollover also available.	12/31 of year following death or rollover by spouse.	Spouse
One non-spouse beneficiary	12/31 of year following death or 5-year rule.	12/31 of year following death.	Beneficiary
Qualifying Trust as Sole Beneficiary	12/31 of year following death or 5-year rule.	12/31 of year following death.	Oldest beneficiary
No Designated Beneficiary	5-year rule.	12/31 of year following death.	Participant’s Remaining Life Expectancy
Two or More Beneficiaries	12/31 of year following death or 5-year rule.	12/31 of year following death.	Oldest Beneficiary

If a retiree has participated in multiple plans, the Minimum Required Distributions (MRD) must be calculated for each plan and receive separate MRD’s for pension and 401(k) plans. The rules for IRA’s are not the same as there is no requirement to take each IRA’s MRD. The participant may total all of the MRD’s for all of the IRA’s and withdraw the total from one of the accounts. This is also true for 403(b)’s.

In order to calculate MRD’s, you must know life expectancy (LE) to find the applicable divisor in an IRS table. There is one uniform distribution lifetime table and under no circumstances will anyone’s lifetime MRD be higher than the computation under the table.

Uniform Distribution Lifetime Table - IRC Regs. 1.401(a)(9)

Age	Life Expectancy Divisor	Age	Life Expectancy Divisor	Age	Life Expectancy Divisor	Age	Life Expectancy Divisor
70	27.4	81	17.9	92	10.2	104	4.9
71	26.5	82	17.1	93	9.6	105	4.5
72	25.6	83	16.3	94	9.1	106	4.2
73	24.7	84	15.5	95	8.6	107	3.9
74	23.8	85	14.8	96	8.1	108	3.7
75	22.9	86	14.1	97	7.6	109	3.4
76	22.0	87	13.4	98	7.1	110	3.1
77	21.2	88	12.7	99	6.7	111	2.9
78	20.3	89	12.0	100	6.3	112	2.6
79	19.5	90	11.4	101	5.9	113	2.4
80	18.7	91	10.8	102	5.5	114	2.1
				103	5.2	115 and older	1.9

The only persons not using the uniform table are individuals who have named spouses who are more than 10 years younger than the participant or those who have inherited a retirement account. Retirees whose spouses are more than 10 years younger will use a joint and survivor table. Persons who have inherited a retirement account will use the single life beneficiary table.

Single Life Beneficiary Table - IRC Regs. 1-401(a)(9)

Age	LE	Age	LE	Age	LE	Age	LE	Age	LE	Age	LE
0	82.4	20	63.0	40	43.6	60	25.2	80	10.2	100	2.9
1	81.6	21	62.1	41	42.7	61	24.4	81	9.7	101	2.7
2	80.6	22	61.1	42	41.7	62	23.5	82	9.1	102	2.5
3	79.7	23	60.1	43	40.7	63	22.7	83	8.6	103	2.3
4	78.7	24	59.1	44	39.8	64	21.8	84	8.1	104	2.1
5	77.7	25	58.2	45	38.8	65	21.0	85	7.6	105	1.9
6	76.7	26	57.2	46	37.9	66	20.2	86	7.1	106	1.7
7	75.8	27	56.2	47	37.0	67	19.4	87	6.7	107	1.5
8	74.8	28	55.3	48	36.0	68	18.6	88	6.3	108	1.4
9	73.8	29	54.3	49	35.1	69	17.8	89	5.9	109	1.2
10	72.8	30	53.3	50	34.2	70	17.0	90	5.5	110	1.1
11	71.8	31	52.4	51	33.3	71	16.3	91	5.2	111+	1.0
12	70.8	32	51.4	52	32.3	72	15.5	92	4.9
13	69.9	33	50.4	53	31.4	73	14.8	93	4.6
14	68.9	34	49.4	54	30.5	74	14.1	94	4.3
15	67.9	35	48.5	55	29.6	75	13.4	95	4.1
16	66.9	36	47.5	56	28.7	76	12.7	96	3.8
17	66.0	37	46.5	57	27.9	77	12.1	97	3.6
18	65.0	38	45.6	58	27.0	78	11.4	98	3.4
19	64.0	39	44.6	59	26.1	79	10.8	99	3.1

IRC Sec. 402 allows retirement distributions to be “rolled over” to a different retirement plan or IRA within 60 days. A “rollover” is usually a distribution from one plan or IRA to a participant with a subsequent transfer to another plan or IRA in the participant’s name. This is not the same as a trustee to trustee or custodian to custodian or plan to plan transfer, which never distribute funds to the participant. There is a mandatory 20-percent withholding when a participant does not elect a trustee to trustee transfer. As such, if the participant intends to roll over the entire amount within 60 days, the balance of the 20 percent withheld must be made up by the participant when the dollar-for-dollar contribution is made to the new plan. Rollovers are permitted from a qualified plan to qualified plan, qualified plan to an IRA, IRA to IRA, qualified plan to a Sec. 457 plan, qualified plan to a Sec. 403(b) plan, IRA to qualified plan, IRA to Sec. 457 plan, and IRA to a Sec. 403(b) plan. Certain distributions cannot be rolled over including MRDs, periodic payments, corrective or deemed distributions that are a result of the taxable cost of insurance in a plan, a plan loan that is foreclosed or the return of an excess 401(k) contribution, and hardship distributions.

A spouse beneficiary may rollover his or her inherited benefits. Non-spouse beneficiaries have fewer options.