IRA Distributions After IRA Owner's Lifetime - Tax Law Changes - Qualified Retirement Plans - Required Minimum Distributions

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Distributions After the IRA Owner's Death

Required minimum distributions for beneficiaries are generally determined by whether or not they are individuals (and have life expectancies). Non-individual beneficiaries include charities, estates, corporations and partnerships.

Individual Beneficiary

Individual beneficiaries are classified as designated beneficiaries.

Required minimum distributions for designated beneficiaries are determined by dividing the IRA balance as of Dec. 31 of the year preceding the year for which the distribution is being calculated by a single life expectancy factor. This factor is obtained from the IRS’s Single Life Table. This rule applies whether or not the IRA owner was taking required minimum distributions before death.

If the spouse is the sole designated beneficiary
The life expectancy factor is based on the spouse’s attained age in the year of distribution. If the IRA owner dies before age 70½, distributions to the spouse need not begin until the year in which the IRA owner would have attained that age. At that time, distributions to the spouse are determined based on the spouse’s life expectancy from the Single Life Table.

Example: An IRA owner dies at age 65. His wife is the sole designated beneficiary of his IRA. If his wife does not elect a spousal rollover of his IRA, distributions from the IRA must begin to her in the year the deceased owner would have attained age 70½. During the spouse’s lifetime, annual distributions would be based on her life expectancy using the Single Life Table.

Other designated beneficiary
The life expectancy factor is based on the designated beneficiary’s attained age in the year following death, reduced by one for each elapsed year since the year of the first distribution. Again, this factor is obtained from the Single Life Table.

Example: An IRA owner died last year. His son, the designated beneficiary of his IRA, turns 40 this year. His life expectancy of 43.6 is used to determine this year’s distribution. Next year’s distribution will be based on his life expectancy reduced by one (or 42.6), and so on.

Non-Individual Beneficiary

Required minimum distributions for beneficiaries other than designated beneficiaries depend on whether the IRA owner’s death occurred before or after the owner’s required beginning date (i.e., April 1 of the year after reaching age 70½).

Death of the IRA owner before the required beginning date
The five-year rule applies. Under this rule, the entire account balance must be distributed by the end of the fifth year following the year of the owner’s death. No distribution is required for a year before this fifth year.

Example: An IRA owner designated his synagogue as beneficiary of his IRA. He attains age 70½ on Aug. 1, 2002. Under the law, he must begin taking his required minimum distributions no later than April 1, 2003, which is his required beginning date. The IRA owner dies on Oct. 15, 2002. His entire IRA account must be distributed to the synagogue by Dec. 31, 2007.

Death of the IRA owner on or after the required beginning date
Required minimum distributions are based on the IRA owner’s remaining life expectancy factor. This is based on the owner’s age (as of his or her birthday in the year of death), reduced by one for each elapsed year since the year of death. (See the Single Life Table.)

Example: Continuing with the previous example, the IRA owner dies on Sept. 1, 2005 at age 74. According to the Single Life Table, the owner's remaining life expectancy is 14.1. Therefore, his entire IRA must be distributed to the synagogue within 14.1 years. The first required minimum distribution must be taken by Dec. 31, 2006. The divisor for the required minimum distributions is three in year one, two in year two, one in year three, etc.

Next: Determination of the Designated Beneficiary