The RMDs are based upon the single life expectancy of the oldest trust beneficiary and will be determined using the fixed-term method instead of the more advantageous recalculation method
, thus accelerating the pace at which the plan benefits will be depleted.
The rules for distributions after the participant's death specify whether the term-certain or the recalculation method
* All participants and beneficiaries automatically receive the benefits of the old recalculation method
without any of its disadvantages.
Generally the recalculation method
delays depletion of the plan by "stretching out" the payments.
The MDIB table uses a double recalculation method
to determine life expectancy that produces a very long joint life expectancy and therefore low minimum distribution requirements during the IRA owner's lifetime.
(Recalculation is not an option for non-spouse beneficiaries.) The sidebar, "Recalculating Life Expectancies," above, describes the recalculation method
more fully, including a discussion of when it might be advantageous.
With either a single or a joint life expectancy, the life expectancy can be calculated by either electing to (1) reduce the IRA owner's or the designated beneficiary's life expectancy, or both, by one each year (i.e., the term-certain method) or (2) recalculate the IRA owner's or the designated beneficiary's life expectancy or both each year (i.e., the recalculation method
Escaping from the recalculation method
. Many IRA owners name their spouse as beneficiary and elect (or default into) the recalculation method
Most IRA holders choose the annual recalculation method
for determining minimum distributions; this allows the IRA owner and spouse to use their attained ages as of their birthdays each year when looking up their joint life expectancy in the IRS tables (in Publication 590).
However, the IRA owner must make a key decision no later than his or her required beginning date, choosing to elect a fixed number of years for IRA distributions or to elect the life-expectancy recalculation method
(the IRA owner's life expectancy expands each year).
The IRS also favorably ruled that designated IRA beneficiaries could take distributions over the life expectancy of the oldest beneficiary following the death of the IRA account holder even though the IRA account holder had elected to take distributions based upon a single life expectancy under the recalculation method