©2015, College for Financial Planning, all rights reserved. Session 11 RMDs and Inherited Retirement Accounts CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee Benefits

Session Details Module7 Chapter(s)3, 4, 5 LOs Identify minimum distribution requirements and distribution alternatives to calculate the required minimum distribution. Identify a requirement for an IRA or qualified retirement plan distribution resulting from the death of the participant. Use the appropriate distribution requirements and characteristics to calculate the taxable income on distributions from nondeductible and nontraditional IRAs and other less common distributions. 11-2

Required Minimum Distributions Qualified plan distributions must begin by April 1 of the calendar year following the later of: 1.the calendar year in which employee attains age 70½, or 2.the calendar year in which employee retires IRA distributions must begin in the calendar year in which the participant attains age 70½ 50% excise tax on any shortfall 11-3

1st and 2nd Distribution Years Balance on Dec. 31 of prior year 70 1 / 2 Trigger year 1 st distribution year Dec. 31 Jan. 1 Dec. 31 Apr. 1 2 nd distribution year 1 st distribution due by April 1 Required Beginning Date 2 nd distribution due by Dec. 31 of 2 nd year 11-4

IRA Required Minimum Distributions Minimum distribution amount: Total IRA(s) balance must be distributed over the Uniform Table life expectancy of the owner or joint life expectancy of owner and spouse if the spouse is more than 10 years younger Aggregation Allowed o within IRA plans, including SEP-IRAs and SIMPLE programs o within 403(b) plans Not allowed o across plan types o between corporate plans, including 401(k) 50% penalty tax on RMD shortfall 11-5

Required Minimum Distribution Rates Participant Age Distribution Period (Years) Percent of Balance

Annuity Payment Distribution Taxation (if there is basis) Age 75 or older Prior to age

Minimum Distributions Following Death No Beneficiary If death occurs before RBD, then the five-year rule applies If death occurs after RBD, then the distribution would be based on the deceased’s life expectancy using the RMD Single Life Table fixed term 11-8

Minimum Distributions Following Death Spouse Beneficiary (both before and after RBD) Roll into own IRA and start taking distributions when he/she reaches age 70½ Take RMDs starting by December 31st of the year following death based on surviving spouse’s life expectancy; using the RMD Single Life table and recalculating each year Distribute under the five-year rule Delay distributions until the deceased would have been age 70½ (if deceased spouse under age 70½) 11-9

Minimum Distributions Following Death Nonspouse Beneficiary (both before and after RBD) Take RMDs starting by December 31st of the year following death based on beneficiary’s life expectancy; using the RMD Single Life table and then using fixed term Can roll over into an IRA—needs to be titled as a beneficiary account, and distributions must still be taken as outlined above Distribute under the five-year rule 11-10

Nontaxable Portion of Nondeductible IRA Distributions 11-11

Qualified Distributions from Roth IRA For qualified distribution status, the owner must meet two requirements: Five-year holding period requirement and the owner is at least age 59½, or to a beneficiary or after the death of the owner, or to the owner because of the owner’s disability, or for a qualified special purpose distribution* *The only qualified special distribution currently available is for first-time homebuyer expenses of up to $10,

Question 1 Bob Wheeler is retired and wants to take out the minimum amount he can from his IRA account. He turned age 70½ on June 2nd of this year. He has come to you and wants to know what his minimum distribution amount will be for this year. His account balance at the end of this year is projected to be $190,500, and his account balance at the end of last year was $183,000. According to the Uniform Table, the life expectancy for age 70 is 27.4, and for age 71 it is What is Bob’s minimum distribution amount? a.$6,679 b.$6,906 c.$6,953 d.$7,

©2015, College for Financial Planning, all rights reserved. Session 11 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Retirement Planning & Employee Benefits