section 1 - The American College Online Learning Center

(2) Exception: If there are separate accounts for each beneficiary, then theRMD can use the beneficiaries’ specific age to determine the amount thatmust be withdrawn.16. Common errors in the RMD rules as they apply to beneficiariesa. Most glaring: beneficiary withdraws the whole account to buy a boat insteadof maximizing tax-deferred growth by stretching out distributions over thebeneficiary’s life expectancy.b. Do not fail to make RMD in year of death and remember to continue RMDs tobeneficiaries as the penalty will apply.c. Beneficiary designations: fail to consider RMD, tax and legacy goalsd. Postmortem planning is available. Clients should not fail to take advantage ofopportunities to maximize the “stretch period.”17. Postmortem planning review:18. Example:a. The beneficiary used under the RMD rules is the beneficiary as of September 30thof the year following the participant’s death.b. A beneficiary cannot be added after the death of the participant.c. Planning tools include:(1) Use a qualified disclaimer in favor of a contingent beneficiary.(2) Make distributions prior to the following September 30th so the beneficiaryis not counted.(3) With multiple beneficiaries, divide into separate accounts to stretch outpayments.a. Helen has four primary beneficiaries(1) Son Bud(2) Daughter Betty(3) The American College(4) Second husband Saul19. Rules for when a participant dies prior to the required beginning date:a. With a nonperson beneficiary(1) All distributions must be made within 5 years.b. With a spousal beneficiary(1) The spouse should roll over the account balance to their own IRA.(2) Alternatively: Leave the account balance in name of decedent; beginbenefits by December 31st of year decedent would have attained age 70½.c. With a nonspousal beneficiary(1) Lifetime exception – distribute benefits over the beneficiaries lifetime.(2) Benefits begin by end of the year following the year of participant’s death.20. Common errors that apply when a participant dies prior to the required beginning date:a. Most glaring error: beneficiary still buys a boat instead of stretching out payments,which would result in a significant amount of additional tax-deferred growth.4.15