Experience and Benefits
Required Distributions Under Section 401(a)(9)
Section 401(a)(9) imposes minimum distribution requirements for qualified plans. Similar requirements are also applicable to Keoghs and IRA's. These requirements are designed to prevent the unreasonable deferral of plan withdrawals.
(a) Required Beginning Date: Your accrued benefit must be distributed in full or a qualifying distribution schedule must be commenced no later than your "required beginning date". This date is the first day of April following the calendar year in which you attain age 70‑1/2. Actually, a distribution must be made for the year in which you attain age 70‑1/2, and each year thereafter. If you wait until the following year for your required beginning date to make your first year's distribution, you will have to make two year's distributions in that year. The first distribution for the 70‑1/2 year is due on April 1st. The second distribution for the current year is due on December 31st.
- Qualifying Distribution Schedule: In January 2001 the U.S. Treasury Department changed the rules for calculating required minimum distributions from individual accounts under the 1987 proposed regulations and thus the rules have been substantially simplified. In responding to the concerns of IRA owners and their heirs, these would make it much easier for individuals -- both plan participants and IRA owners -- and plan administrators to understand and apply the minimum distribution rules. The new regulations would make major simplifications to the rules, including the calculation of the required minimum distribution during the individual's lifetime and the determination of a designated beneficiary for distributions after death. The new regulations simplify the rules by providing a simple, uniform table that all IRA owners’ can use to determine the minimum distribution required during their lifetime. This makes it far easier to calculate the required minimum distribution because IRA owner’s would:
- No longer need to determine their beneficiary by their required beginning date,
- No longer need to decide whether or not to recalculate their life expectancy each year in determining required minimum distributions, and no longer need to satisfy a separate incidental death benefit rule.
- Permitting the required minimum distribution during the IRA owner’s lifetime to be calculated without regard to the beneficiary's age (except when required distributions can be reduced by taking into account the age of a beneficiary who is a spouse more than 10 years younger than the employee).
- Permitting the beneficiary to be determined as late as the end of the year following the year of the employee's death. This allows the IRA owner to change designated beneficiaries after the required beginning date without increasing the required minimum distribution and
The beneficiary to be changed after the IRA owner’s death, such as by one or more beneficiaries disclaiming or being cashed out.
- Permitting the calculation of post-death minimum distributions to take into account an IRA’s owner’s remaining life expectancy at the time of death, thus allowing distributions in all cases to be spread over a number of years after death.
For distributions from an individual account, the required minimum distribution is determined by dividing the account balance by the distribution period. For lifetime required minimum distributions, these regulations provide a uniform distribution period for all employees of the same age. The uniform distribution period table is the required minimum distribution incidental benefit (MDIB) divisor table originally prescribed in section 1.401(a)(9)-2 of the 1987 regulations. An exception applies if the employee's sole beneficiary is the employee's spouse and the spouse is more than 10 years younger than the IRA owner. In that case, the IRA owner is permitted to use the longer distribution period measured by the joint life and last survivor life expectancy of the IRA owner and spouse.
(d) Penalties: It is important to remember that these required distributions are only your "minimum" distributions. You are always entitled to distribute more from your IRA should you so desire. However, it is important that you make the minimum distribution each year because the IRS may levy a 50% penalty on the amount of any shortfall in any given year, which is reported to the IRS by the IRA custodian.