Required Minimum Distributions (RMDs)
Beneficiary RegulationsThere are a number of rules that govern beneficiary distributions. The following information covers RMD regulations affecting beneficiaries. For more information on beneficiaries, please see the the Beneficiary Options Resource Center.
The date for determining the designated beneficiary is September 30th of the year following the year of the account holder's death.
Generally, beneficiaries can calculate benefits based on their own life expectancy factor rather than the life expectancy factor of the deceased. If there are multiple beneficiaries this will change. Details
If a beneficiary fails to elect a method of distribution, the regulations provide for the distribution calculation to be based on the beneficiary's life expectancy factor starting no later than December 31st of the year following the year of the account holder's death.
The RMD regulations detail changes for specific beneficiary types:
- Spousal Beneficiaries
- Non-Spousal Beneficiaries
- Multiple Beneficiaries
- Special Note — Non-Spousal Beneficiaries and Employer Plans
- Beneficiaries Other Than Individuals
Spousal Beneficiaries
- A sole spousal beneficiary may use his/her own life expectancy factor to determine distributions for the years after the year of the account holder's death.
- If the account holder had not reached his/her required beginning date, the spouse can postpone distributions until the calendar year the account holder would have reached 70½.
- A spousal beneficiary may also roll over the amount of the benefit into an IRA in his/her own name.
- A spouse may choose to use the five-year rule and withdraw all assets within five years of the spouse's death.
- A spouse may also roll over the account into his/her own IRA. In that case, RMDs will begin when the surviving spouse reaches age 70½.
Non-Spousal Beneficiaries
- For a single beneficiary, in the calendar year following the death of the account holder, distributions are calculated using the designated beneficiary's remaining life expectancy as of that year.
- If there are multiple beneficiaries, the life expectancy factor used to determine distributions is the shortest life expectancy factor of all of the beneficiaries, unless the account is split into separate accounts by December 31st of the year following the year of the account holder's death.
- Non-spousal beneficiaries may use the five-year rule and withdraw all assets within five years of the account holder's death.
Multiple Beneficiaries
If there are multiple beneficiaries, the account can be separated for each beneficiary so that each can use his/her own life expectancy. If the account is not split, the beneficiary with the shortest life expectancy will be the designated beneficiary for the purpose of determining the RMD amount.
A beneficiary can decide to either reject their share of the account or take a lump sum distribution. For more information, see qualified disclaimer.
Special Rules for Non-Spousal Beneficiaries and Employer Plans
The Pension Protection Act of 2006 introduced a special rule for non-spouse beneficiaries of employer sponsored plans (profit sharing, money purchase pension, 457, 403(b) and 401(k)). Under the rule, the beneficiary can transfer the assets to an inherited IRA and take distributions based on their life expectancy. The following requirements must be met.
- The transfer must be made by December 31 of the year following the year of the account holder’s death
- The distribution to the IRA must take place through a direct rollover. If the beneficiary takes receipt of the assets, they cannot be deposited to the IRA.
Beneficiaries Other Than Individuals
If a named beneficiary is not an individual (such as an estate or charity), the account is treated as if there is no designated beneficiary, even if there are also individuals designated as beneficiaries.
The information contained on these pages is for general educational purposes only, individuals should consult their financial advisor or legal counsel to determine how these regulations affect their unique situation.
