What is R M D

1
What is R M D?
When clients have qualified money such as IRAs,
TSAs, and 401(k)s, IRS guidelines require they
begin taking minimum distributions from these
funds at age 70 ½. Required Minimum Distribution
(or RMD) is designed to help them calculate the
proper minimum distribution based on life
expectancy.
2
When Do They Start?
Tax laws require clients to begin receiving
minimum distributions from their qualified money
by April 1 of the year after they attain age 70
½. For example, if 70 ½ on May 1, 2002, their
initial distribution must be taken by April 1,
2003 and be based on the Contract Value as of
December 31 of that year. Future distributions
must be taken by December 31 of each year.
3
Changes with Minimum Distribution
The U.S. Treasury Department changed RMD
Guidelines effective April 2002. The new
guidelines are far more flexible and less
complicated. Furthermore, the guidelines require
less money to be distributed each year, which
helps reduce the tax liability and allows more to
be passed on to the clients heirs. The heirs
also have more flexibility, allowing them to
stretch out minimum distributions of their
qualified funds based on their life expectancy.
4
What are the Payout Options for Beneficiaries of
Qualified Plans?
The following options are available to
beneficiaries of qualified plans? Lump
Sum Spousal Continuation (spouse must be
sole beneficiary) Annuitization
RMD Stretch IRA The last option has drawn the
most attention. The fourth option is better known
as Multi-Generational or Stretch Payouts. When
retirement begins, many retirees utilize their
qualified funds (i.e. IRA, TSA, pensions, etc.)
for income purposes, but there are many others
who do not have a need for these funds. The goal
of these clients is to pass these dollars onto
their heirs, thus, creating a legacy for many
generations to come.
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Inherited IRA ANALYSIS (a.k.a. Stretch
IRA) This is an example of how clients can turn a
portion of their IRA funds into a lifetime flow
to their heirs. Assume a husband lives to age 85
and the spouse, who inherits the remaining
balance of the qualified funds, lives 3 more
years. Assume the qualified annuity is earning
5.
Mr. Mrs. Smith (ages 65 60) IRA (12/31/2000)
- 250,000 Projected IRA Distributions over his
life expectancy (20 years) 252,932 Contract
Value at Death 305,519
6
Inherited IRA ANALYSIS (a.k.a. Stretch
IRA) This is an example of how clients can turn a
portion of their IRA funds into a lifetime flow
to their heirs. Assume a husband lives to age 85
and the spouse, who inherits the remaining
balance of the qualified funds, lives 3 more
years. Assume the qualified annuity is earning
5.
Mrs. Smith (age 80) IRA (12/31/2020) - 305,519
Projected IRA Distributions over her life
expectancy (3 years) 53,305 Contract Value at
Death 297,733
Mr. Mrs. Smith (ages 65 60) IRA (12/31/2000)
- 250,000 Projected IRA Distributions over his
life expectancy (20 years) 252,932 Contract
Value at Death 305,519
7
Inherited IRA ANALYSIS (a.k.a. Stretch
IRA) This is an example of how clients can turn a
portion of their IRA funds into a lifetime flow
to their heirs. Assume a husband lives to age 85
and the spouse, who inherits the remaining
balance of the qualified funds, lives 3 more
years. Assume the qualified annuity is earning
5.
Mrs. Smith (age 80) IRA (12/31/2020) - 305,519
Projected IRA Distributions over her life
expectancy (3 years) 53,305 Contract Value at
Death 297,733
Mr. Mrs. Smith (ages 65 60) IRA (12/31/2000)
- 250,000 Projected IRA Distributions over his
life expectancy (20 years) 252,932 Contract
Value at Death 305,519
Beneficiaries (children, grandchildren) Beneficiar
ies Share Balance
Life Exp. IRA Distr. Child 1
(age 40) 60
178,640 44
308,000 Grandchild 1 (age 12) 20
59,547 71
239,844 Grandchild 2 (age 10) 20
59,547 73
257,422 Total
297,733 Total 805,267
8
Inherited IRA ANALYSIS (a.k.a. Stretch
IRA) This is an example of how clients can turn a
portion of their IRA funds into a lifetime flow
to their heirs. Assume a husband lives to age 85
and the spouse, who inherits the remaining
balance of the qualified funds, lives 3 more
years. Assume the qualified annuity is earning
5.
Mrs. Smith (age 80) IRA (12/31/2020) - 305,519
Projected IRA Distributions over her life
expectancy (3 years) 53,305 Contract Value at
Death 297,733
Mr. Mrs. Smith (ages 65 60) IRA (12/31/2000)
- 250,000 Projected IRA Distributions over his
life expectancy (20 years) 252,932 Contract
Value at Death 305,519
Beneficiaries (children, grandchildren) Beneficiar
ies Share Balance
Life Exp. IRA Distr. Child 1
(age 40) 60
178,640 44
308,000 Grandchild 1 (age 12) 20
59,547 71
239,844 Grandchild 2 (age 10) 20
59,547 73
257,422 Total
297,733 Total 805,267
Child (now age 84)
64,412 Grandchild (now age 83)
8,146 Grandchild (now age 83)
7,105
Total 79,663
At the Death of the Beneficiaries the Contract
Balances are
9
Inherited IRA ANALYSIS (a.k.a. Stretch
IRA) This is an example of how clients can turn a
portion of their IRA funds into a lifetime flow
to their heirs. Assume a husband lives to age 85
and the spouse, who inherits the remaining
balance of the qualified funds, lives 3 more
years. Assume the qualified annuity is earning
5.
Mrs. Smith (age 80) IRA (12/31/2020) - 305,519
Projected IRA Distributions over her life
expectancy (3 years) 53,305 Contract Value at
Death 297,733
Mr. Mrs. Smith (ages 65 60) IRA (12/31/2000)
- 250,000 Projected IRA Distributions over his
life expectancy (20 years) 252,932 Contract
Value at Death 305,519
Beneficiaries (children, grandchildren) Beneficiar
ies Share Balance
Life Exp. IRA Distr. Child 1
(age 40) 60
178,640 44
308,000 Grandchild 1 (age 12) 20
59,547 71
239,844 Grandchild 2 (age 10) 20
59,547 73
257,422 Total
297,733 Total 805,267
Child (now age 84)
64,412 Grandchild (now age 83)
8,146 Grandchild (now age 83)
7,105
Total 79,663
At the Death of the Beneficiaries the Contract
Balances are
The Total Distributions Paid Out 1,111,504
Stretched over several generations!
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Some Areas of Concern

• Trusts as beneficiaries are a special concern.
• Pension plans do not allow for Stretch IRAs.
• Some mutual funds do not allow for Stretch IRAs.
• Some variable annuities do not allow for Stretch
  IRAs.
• Some fixed annuities do not allow for Stretch
  IRAs.
• A review of your IRAs would
• Be a timely suggestion!