Probate & Trust Law Section Conference Manual ... - Minnesota CLE

III.
RETIREMENT ACCOUNT GIFTS.
A. “Retirement accounts” in this presentation includes what are commonly called
accounts in “qualified” plans because investment in the account and contributions
to the account qualify under the Code for favorable income taxation. We will
cover individual retirement accounts (“IRAs”) and 401(k) and 403(b) plans for
public or government employees. These materials are not intended to cover nonqualified
retirement accounts or Roth IRAs, both of which have different tax
consequences.
B. Required Minimum Distribution (“RMD”) Rules.
1. RMD rules require withdrawals be made from the retirement account
during the participant’s life and after the participant’s death. IRC
§ 401(a)(9). A slower rate of withdrawals is generally considered more
advantageous because more of the account will grow tax-free for a longer
period.
2. RMDs During the Life of Participant (“P”)
a. For IRA accounts, the required beginning date (“RBD”) for RMDs
is April 1 of the calendar year following the year in which P
reaches age 70½. IRC § 401(a)(9)(C); Treas. Reg. § 1.401(a)(9)-
5, A-1(c). For employer plans, the RBD can be delayed after age
70 ½ until April 1 of the calendar year following the year P ceases
working for employer. IRC § 401(a)(9)(C)(i)(II).
b. After the RBD, P must withdraw amounts from the plan at a rate
designed to draw down the account over the joint life expectancy
of P and a deemed designated beneficiary (“DB”) 10 years younger
than P, irrespective of whether P names an actual DB or whom the
actual beneficiary designation names. Treas. Reg. § 1.401(a)(9)-
5, A-4(a); see also Uniform Lifetime Table, Treas. Reg.
§ 1.401(a)(9)-9, A-2.
c. If P designates his spouse (“S”) as the beneficiary of the entire
account and S is more than 10 years younger than P, the actual
joint life expectancy of P and S is used to compute RMDs. Treas.
Reg. § 1.401(a)(9)-5, A-4(b); see Joint & Last Survivor Table,
Treas. Reg. § 1.401(a)(9)-9, A-3.
3. RMDs After P’s Death
a. If P named a DB, distributions after P’s death may be made over
the remaining life expectancy of the DB.IRC § 401(a)(9)(A)(ii).
b. If P has no DB, distributions must be made over P’s remaining life
expectancy if P died after his RBD, or if P died before his RBD,
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