IRA Distributions - The Basics

Retirement distribution planning is an underserved area of estate and financial planning. Many professionals, estate planning attorneys and financial advisors alike, do not understand the intricacies of required minimum distribution rules. Determining IRA distributions does in fact appear daunting. While the rules can be technical, they can also be broken down into some fairly easy and manageable parts. This section discusses basic aspects of IRA distributions. Click on any of the below topic titles to be taken directly to that topic area.

Basic IRA Distribution Concepts
The Required Beginning Date
Calculating the Required Minimum Distribution
Post-Death Required Minimum Distributions
A Note on Non-IRA Retirement Accounts

Basic IRA Distribution Concepts

There are four concepts that are fundamental to IRA distributions.

IRA funds are not taxed until withdrawn from the IRA account.
Distributions to the IRA owner must begin by the Required Beginning Date.
Once distributions begin, the Required Minimum Distribution must be made.
Distributions must continue after the IRA owner dies in one of the following ways:
- If the IRA beneficiary is a surviving spouse, the surviving spouse may -
  - roll the IRA over and become the owner of it, or
  - take distributions from the IRA as any other non-spouse beneficiary could; or
- If the IRA beneficiaries are not a surviving spouse, the non-spouse beneficiaries may -
  - have to take full distribution of the IRA within 5 years of the IRA owner's death (and lose the opportunity for extended tax deferred growth and distributions), or
  - have to continue to take Required Minimum Distributions over the remaining life expectancy (as determined by IRS tables) of the now deceased IRA owner (and again lose the opportunity for extended tax deferred growth and distributions), or
  - take Required Minimum Distributions over the life expectancy of the oldest IRA beneficiary (which results in some loss of tax deferred growth and distributions for younger beneficiaries), or
  - each beneficiary may take Required Minimum Distributions over his or her own life expectancy, resulting in maximum tax deferred growth and distributions for each individual beneficiary.

As we will see in the example below, the highlighted result for non-spouse beneficiaries is very desirable. The difference in total amounts distributed under any other alternative compared to the final alternative is staggering.

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The Required Beginning Date

The Required Beginning Date is simply the date upon which the IRA owner must take the first Required Minimum Distribution. It is April 1 of the year following the year in which the IRA owner turns 70 1/2. Keep in mind that all other annual Required Minimum Distributions must be made by December 31 of each year after the Required Beginning Date.

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Calculating Required Minimum Distributions

Determining Required Minimum Distributions is actually a fairly simple calculation. The distribution for any year is calculated as the prior year's December 31 account balance divided by the applicable Life Expectancy Factor. The correct Life Expectancy Factor to use is determined by life expectancy tables. The correct table to use depends upon whether you are the IRA owner or an IRA beneficiary.

The Uniform Life Table

An IRA owner (which includes the original IRA owner as well as a spouse that completes a spousal rollover) uses the Uniform Life Table. With the exception of an IRA owner with a spouse as sole beneficiary that is more than 10 years younger, all IRA owners use the Uniform Life Table.

Age	Factor	Age	Factor	Age	Factor	Age	Factor
70	27.4	82	17.1	94	9.1	105	4.5
71	26.5	83	16.3	95	8.6	106	4.2
72	25.6	84	15.5	96	8.1	107	3.9
73	24.7	85	14.8	97	7.6	108	3.7
74	23.8	86	14.1	98	7.1	109	3.4
75	22.9	87	13.4	99	6.7	110	3.1
76	22	88	12.7	100	6.3	111	2.9
77	21.2	89	12	101	5.9	112	2.6
78	20.3	90	11.4	102	5.5	113	2.4
79	19.5	91	10.8	103	5.2	114	2.1
80	18.7	92	10.2	104	4.9	115 and over	1.9
81	17.9	93	9.6

An important rule to note is that an IRA owner is allowed to recalculate his or her life expectancy every year. That is, a 78 year old IRA owner will use a Life Expectancy Factor of 20.3. The next year, the same IRA owner (now age 79) has a Life Expectancy Factor of 19.5 (rather than 19.3, which would be the case if we simply subtracted 1 from the prior year's Life Expectancy Factor).

The Single Life Table

The Single Life Table is used by IRA beneficiaries after the death of the IRA owner, if the beneficiary is a Designated Beneficiary (discussed below).

Age	Factor	Age	Factor	Age	Factor	Age	Factor
0	82.4	28	55.3	56	28.7	84	8.1
1	81.6	29	54.3	57	27.9	85	7.6
2	80.6	30	53.3	58	27	86	7.1
3	79.7	31	52.4	59	26.1	87	6.7
4	78.7	32	51.4	60	25.2	88	6.3
5	77.7	33	50.4	61	24.4	89	5.9
6	76.7	34	49.4	62	23.5	90	5.5
7	75.8	35	48.5	63	22.7	91	5.2
8	74.8	36	47.5	64	21.8	92	4.9
9	73.8	37	46.5	65	21	93	4.6
10	72.8	38	45.6	66	20.2	94	4.3
11	71.8	39	44.6	67	19.4	95	4.1
12	70.8	40	43.6	68	18.6	96	3.8
13	69.9	41	42.7	69	17.8	97	3.6
14	68.9	42	41.7	70	17	98	3.4
15	67.9	43	40.7	71	16.3	99	3.1
16	66.9	44	39.8	72	15.5	100	2.9
17	66	45	38.8	73	14.8	101	2.7
18	65	46	37.9	74	14.1	102	2.5
19	64	47	37	75	13.4	103	2.3
20	63	48	36	76	12.7	104	2.1
21	62.1	49	35.1	77	12.1	105	1.9
22	61.1	50	34.2	78	11.4	106	1.7
23	60.1	51	33.3	79	10.8	107	1.5
24	59.1	52	32.3	80	10.2	108	1.4
25	58.2	53	31.4	81	9.7	109	1.2
26	57.2	54	30.5	82	9.1	110	1.1
27	56.2	55	29.6	83	8.6	111 and over	1

Unlike an IRA owner using the Single Life Table, an IRA beneficiary does not get to recalculate his or her life expectancy every year. In the case of an IRA beneficiary a subtraction method is used whereby the current Life Expectancy Factor is the prior year's Life Expectancy Factor less 1. For example, if the IRA beneficiary is age 49 when he or she inherits the IRA and calculates the first Required Minimum Distribution, the correct Life Expectancy Factor is 35.1. The following year the correct Life Expectancy Factor for that IRA beneficiary is 34.1. In other words, once the first Life Expectancy Factor is determined, an IRA beneficiary does not need to look again to the Single Life Table to determine each year's Life Expectancy Factor.

Comparing the Uniform Life Table and Single Life Table

An example shows how different tables produce markedly different results. Assume an 80 year old IRA owner. Looking to the Uniform Life Table, the owner's Life Expectancy Factor is 18.7. An 80 year old IRA beneficiary using the Single Life Table would have a Life Expectancy Factor of 10.2. Therefore an 80 year old IRA owner would have a Required Minimum Distribution of approximately 5.3% of the IRA account whereas the 80 year old IRA beneficiary would have a Required Minimum Distribution of approximately 9.8% of the IRA account. The different result highlights the fact that the Required Minimum Distribution rules are not intended to cause an IRA owner to be forced to fully distribute his or her IRA funds during retirement, but there is much less concern about preserving the funds beyond the lifetime of an IRA beneficiary.

Joint and Last Survivor Table

The final table is the Joint and Last Survivor Table. It is used by IRA owners whose sole beneficiary is a spouse that is more than 10 years younger than the IRA owner. The size of the table makes it impractical to reproduce here. It can be found on the IRS web site at this link.

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Post Death Required Minimum Distributions

As mentioned above, a beneficiary's ability to use the Single Life Table when calculating Required Minimum Distributions depends on whether or not the beneficiary is a Designated Beneficiary. Anyone receiving property upon the event of someone's death is a "beneficiary" in the common use of that term. Being a Designated Beneficiary of an IRA means something very specific and important. It means that STRETCH distributions from the IRA can be made over the Designated Beneficiary's lifetime.

The Designated Beneficiary?

In simplest terms, a Designated Beneficiary is any of the following:

An individual
A group or class of individuals, or
Certain trusts (commonly called "see through" trusts, which includes our IRA Stretch and Protection Trust^SM).

The term does not include your estate, corporate entities, charities or non-human living things (such as animals).

Designated Beneficiary v. "beneficiary" and the Role of the Required Beginning Date

If the IRA owner dies before his or her Required Beginning Date without a Designated Beneficiary, the IRA must be fully paid out within 5 years of the IRA owner's death. This result is catastrophic - all possibility of extended tax deferred distributions in the IRA has been lost. The result is not significantly better if the IRA owner dies after his or her Required Beginning Date without a Designated Beneficiary. In that case the IRA must be paid out over the deceased IRA owner's remaining life expectancy using the Single Life Table.

If instead the IRA owner has a Designated Beneficiary, death before or after the Required Beginning Date is immaterial. The Designated Beneficiary will be allowed to take STRETCH distributions over his or her own lifetime using the Single Life Table.

The following table details distribution alternatives. Note that they show the maximum period of time over which a retirement account could be distributed. Just because a Designated Beneficiary could take lifetime STRETCH distributions from the IRA does not mean that the Designated Beneficiary will take those distributions (absent affirmative planning on your part to prevent early distributions, such as by using our IRA Stretch and Protection Trust^SM).

	Designated Beneficiary	"beneficiary" (non-DB)
Death Before RBD	Life Expectancy STRETCH Distributions	5 Year Rule
Death After RBD	Life Expectancy STRETCH Distributions	Decedent's Remaining Life Expectancy

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Please proceed to the IRA Stretch and Protection Trust^SM page to learn how you can maximize the STRETCH distributions of your IRA and turn it into A Lifetime of Wealth^SM for your family.

A Note on Non-IRA Retirement Accounts

By now you might have asked yourself why this website focuses on IRAs. What about other kinds of retirement accounts, such as 401(k) and 403(b) plans?

The reason we focus on IRAs is that other types of plans allow the plan sponsor (typically an employer) to dictate certain terms of distribution once the plan participant passes away. That is, while non-IRA plan beneficiaries could be allowed to take lifetime distributions from those plans, plan sponsors can impose significantly shorter periods of time over which the retirement account must be fully distributed. It is not unusual to see employer sponsored plans that require complete distribution within 5 years of the plan participant's death; we have even seen plans that require full distribution within 3 months of the participant's death.

Congress appeared to rectify this problem with the Pension Protection Act of 2006 (the "PPA"). The PPA included language that indicates that all retirement plans are on parity with respect to distributions over the lifetime of beneficiaries. Unfortunately shortly after the PPA was enacted the IRS released technical guidance interpreting the PPA and concluded that while plan sponsors could offer plans that allowed for lifetime distributions to beneficiaries, they were not required to do so.

Because there is a marginal cost associated with each additional participant in a plan, we do not anticipate that many plan sponsors will amend their plans to allow lifetime distributions to beneficiaries after the death of the original plan participant. Because IRAs statutorily allow for lifetime STRETCH distributions, it is therefore often advisable to move non-IRA funds into an IRA account at the earliest possibility. (Whether you should make a rollover contribution to an IRA and the mechanics of doing so are technical issues that are beyond the scope of this site. We strongly recommend that you consult with competent investment or legal counsel before attempting a non-IRA to IRA rollover.)

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Related resources

For additional information on Required Minimum Distributions, we suggest the IRS Retirement Plan FAQs regarding the Required Minimum Distributions or IRS Publication 590.