Required Minimum Distributions

Qualified retirement plans and individual retirement accounts (IRAs) were intended by Congress to help support the plan participant or account owner during retirement, and not as a tax-deferred investment account for the benefit of future generations. Therefore, § 401(a)(9) of the Internal Revenue Code, and the regulations that have been adopted for that section, require distributions from retirement plans during the account owner's lifetime and, after the owner's death, complete distribution either within five years after the owner's death or, if there is an "eligible designated beneficiary," within that beneficiary's lifetime.

The minimum distribution requirements were changed by the SECURE Act, and the requirements that apply after 2019 can be summarized as follows:

• The owner must begin taking distributions following the year in which the owner reaches age 72, and the first distribution must be made by April 1 of that following year. (Before 2020, the required beginning age was 70-1/2.) Required distributions for the years after the year in which the owner turns 72 must be made before the end of the year (i.e., by December 31).
• During the owner's lifetime, required distributions are (a) the value of the account at the end of the previous year, divided by (b) the distribution period. The distribution is based on life expectancies calculated based on ages at the end of the year, as follows:
• If a spouse is named as a designated beneficiary and the spouse is more than ten years younger than the account owner, the distribution period is the joint-and-survivor life expectancy calculated from the owner's age and the spouse's age.
• In all other cases, the distribution period is taken from the "Uniform Lifetime Table," which is the joint-and-survivor life expectancy based on the account owner's age and a second age 10 years younger.
• Following the account owner's death:
• If there is no designated beneficiary, all distributions must be completed within five years if the account owner died before the required beginning date (i.e., before April 1 following the year in which the owner reached 72), or may be made over the owner's remaining life expectancy if the owner died on or after the required beginning date.
• If the designated beneficiary is the surviving spouse, the required minimum distributions may be made over the life expectancy of the surviving spouse, redetermined each year, or over the remaining life expectancy of the account owner.
• If the beneficiary is an "eligible designated beneficiary" other than the surviving spouse, meaning a minor child (but only while a minor), a disabled or chronically ill individual, or an individual not more than 10 years younger than the account owner, then the required minimum distributions may be calculated based on the beneficiary's life expectancy. However, when the beneficiary is a minor child, the distributions must be completed within 10 years after the child reaches the age of majority. (The Internal Revenue Service has not yet issued guidance on what is the age of majority for this purpose.) If the owner died on or after the required beginning date, the beneficiary can elect to take distributions over the owner's remaining life expectancy.
• If there is a designated beneficiary who is not an eligible designated beneficiary (e.g., the beneficiary is an adult child of the account owner), the account must be distributed within 10 years regardless of whether the death was before or after the required beginning date.

A "designated beneficiary" must be either an individual (or group of individuals) or a trust which meets certain requirements (in which case the beneficiary or beneficiaries of the trust are considered the designated beneficiaries). When there is more than one designated beneficiary, the age of the oldest beneficiary is used to calculate required distributions. Following the death of an account owner, the identity of the designated beneficiary must be determined before the end of September of the year following the death of the owner, so accounts and plans can be divided into new accounts among multiple beneficiaries and the required distributions can be calculated for each beneficiary's separate account.

Future distributions can be calculated from the current value of the retirement fund by increasing the value of the fund each year based on an assumed investment yield and using the future life expectancies to determine the future retirement distributions.