Required Minimum Distributions
Rev. 09/23/04, E-mail Alert 2004-19

A retired 401(k) participant was born on August 29, 1933, and has named a 20 year-old grandson as beneficiary. What is the participant's required beginning date (RBD)? How is the required minimum distribution (RMD) calculated? Would the calculation be different if the beneficiary was the participant's spouse who was born December 23, 1952?

The RBD for a retired 401(k) participant is April 1 of the year after the participant attains age 70½. In this example, the participant would attain age 70 on August 29, 2003, and the participant would then attain age 70½ six months later, which would be February 29, 2004. Under this scenario, the participant must take an RMD for calendar year 2004 and the participant’s RBD is April 1, 2005.

The RMD amount for 2004 is calculated by dividing the value of participant’s 401(k) assets as of December 31, 2003, by the factor obtained from the IRS’ Uniform Lifetime Table. The factor is based on the highest age the participant will attain in the calendar year for which the distribution is being made, an IRS term known as the distribution calendar year. The first distribution calendar year is the year the participant attains age 70½ which in this example is 2004. In 2004 the participant will attain age 71. The table factor for age 71 is 26.5. Assuming the participant has a value of $265,000 on December 31, 2003, the $265,000 is divided by the factor of 26.5 and the minimum required distribution is $10,000.00.

The deadline for making a RMD is the last day of the calendar year for which the RMD is attributed. However, the distribution of the first RMD may be delayed until April 1 of the year after age 70½ has been attained (April 1, 2005, in our example). As each subsequent RMD must be made no later than the end of the distribution calendar year, if the first RMD is taken after December 31, 2004, it will result in the participant having to take two RMDs in 2005.

Using this example, the second RMD is calculated by taking the value of the participant’s account on December 31, 2004 and dividing by the factor for the age attained in 2005 (age 72), which is 25.6. This mathematical process is repeated in each subsequent year to determine the appropriate RMD.

As to the last question, what if the participant (born in 1933) were married to someone born on December 23, 1952? There is a special rule in the regulations that states that if the spouse is more than 10 years younger than the participant, the joint life table is to be used to determine the factor used for determining the RMD. Use of the joint life table will result in a more favorable outcome as it results in a lower RMD amount.

Using our example, the December 31, 2003, account value of $265,000 is divided by the joint life factor based on the attained ages of the participant and spouse in 2004, specifically 71 and 52. This provides a joint life expectancy factor of 33.3 years and results in a RMD of $7,957.96.

Bill Grossman, QPA