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The "Divisor" for the IRA Required Distribution
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How is the divisor chosen for computing the IRA required minimum distribution?
IRS Has issued new rules that are not included below.Be certain to read the other pages and the new rules pages -- other wise you will not compute the distribution correctly. IRA Minimum Distributions New Rules
Figuring the Minimum DistributionFigure your required minimum distribution for each year by dividing the IRA account balance (defined later) as of the close of business on December 31 of the preceding year by the applicable life expectancy (defined later). If you have a beneficiary other than your spouse who is more than 10 years younger than you, the distribution must satisfy the minimum distribution incidental benefit (MDIB) requirement discussed later. If this is the case, compare the applicable divisor and the applicable life expectancy and use the lower number. (See Table for Determining Applicable Divisor for MDIB in Appendix E.) Note. Although all required distributions must satisfy the MDIB requirement, as discussed later, the comparison involved in satisfying the requirement makes a difference in the amount required to be distributed only if you have a beneficiary, other than your spouse, who is more than 10 years younger than you. If the only beneficiary of your account is your spouse, even if your spouse is more than 10 years younger, the MDIB requirement is satisfied by figuring the distribution as if the MDIB requirement did not apply. IRA account balance. The IRA account balance is the amount in the traditional IRA at the end of the immediately preceding year with the following adjustments.
Applicable life expectancy. The applicable life expectancy is:
Example 1. Joe, born October 1, 1929, reached 70 1/2 in 2000. His wife (his beneficiary) turned 56 in September 2000. He must begin receiving distributions by April 1, 2001. Joe's IRA account balance as of December 31, 1999, is $29,000. Based on their ages at year end (December 31, 2000), the joint life expectancy for Joe (age 71) and his beneficiary (age 56) is 29 years. (See Table II in Appendix E.) The required minimum distribution for 2000, Joe's first distribution year (his 70 1/2 year), is $1,000 ($29,000 divided by 29). This amount is distributed to Joe on April 1, 2001. Joe's IRA account balance as of December 31, 2000, is $29,725. To figure the minimum amount that must be distributed for 2001, the IRA account balance (as of December 31, 2000) of $29,725 is reduced by the $1,000 minimum required distribution for 2000 that was made on April 1, 2001. The account balance for determining the required distribution for 2001 is $28,725. Determining Life ExpectancyLife expectancies are determined using life expectancy tables like Tables I and II in Appendix E of the IRS publication #590. How do I use the tables? If the periodic payments are for your life only, use the applicable life expectancy in Table I (Single Life Expectancy) to determine your annual minimum distribution. If the payments are for the lives of you and your designated beneficiary, use the applicable life expectancy in Table II (Joint Life and Last Survivor Expectancy).
If you designate as your beneficiary someone (other than your spouse) who is more than 10 years younger than you and the distributions are not made as annuity payments under an annuity contract, be sure to see Minimum Distribution Incidental Benefit (MDIB) Requirement, later. What ages do I use? For distributions beginning by the required beginning date (discussed at Periodic distributions under IRA Owners, earlier), determine life expectancies using your age and the age of your designated beneficiary (assuming you are using Table II) as of your birthdays in the year you become age 70 1/2. Owner dies before distributions begin. If the owner dies before the owner's required beginning date, the life expectancy of the designated beneficiary is determined using Table I and the age as of the beneficiary's birthday in the year distributions must begin. See Owner dies before distributions have begun, earlier, for more information. Life expectancy for subsequent year distributions. For years following the year for which you first determine life expectancy, you must use one of the following two methods of determining life expectancy.
Election to refigure life expectancy. Your traditional IRA terms may permit you and your spouse to elect whether to use the term certain method or to refigure one or both of your life expectancies. You must make this election by the date of the first required minimum distribution. See Required beginning date, earlier. If your IRA permits the election, your IRA trustee should be able to help you make the election. There is no IRS form required for this election. Refiguring life expectancy elected. If you own a traditional IRA and elect to refigure your life expectancy (and that of your spouse, if it applies), it must be refigured annually unless your IRA terms provide otherwise. If you refigure life expectancy annually, the reduction of it by one for each year after it was initially determined (the term certain method) does not apply. Refiguring your life expectancy. To refigure your life expectancy for each year, use your age as of your birthday during the year. Then find your "refigured" life expectancy amount on Table I. Refiguring joint life and last survivor expectancy. To refigure the joint life and last survivor expectancy of you and your spouse for each year, use your and your spouse's ages as of your birthdays during the year. Then find your "refigured" life expectancy amount on Table II. Beneficiary not spouse or choosing not to refigure. If your designated beneficiary is not your spouse or if either (but not both) you or your spouse elect not to refigure, do not use this method to refigure your life expectancy. You must use a special computation method that is discussed under Minimum Distribution Incidental Benefit (MDIB) Requirement, and illustrated in Example 3, later. You can use the worksheet provided at the bottom of Appendix A for determining your required distribution whether or not you refigure life expectancy. If you or your spouse dies. If the joint life expectancy of you and your spouse is refigured annually and either of you dies, then only the survivor's life expectancy is used to figure distributions for the years after the year in which the death occurred. If you and your spouse die. If the life expectancies of both you and your spouse are refigured and both of you die after the date distributions must start, the entire interest must be distributed before the last day of the year following the year of the second death. If you die and your designated beneficiary is not your spouse. If your life expectancy is being refigured annually and you die, then only the life expectancy of the designated beneficiary is used to determine distributions for the years after the year in which your death occurs. The beneficiary's life expectancy must be determined in the same way as before your death, except that neither Table II nor the MDIB requirement (discussed next) applies after your death. (See Example 3, later.) Using Example 3, steps 1 through 4, and assuming Joe died in 1999, Joe's brother's life expectancy after Joe's death would be 25.9, the amount from Table I in step 4 of the example. This rule also applies if your spouse is your designated beneficiary and his or her life expectancy is not refigured annually. Further information. The above rules are explained more fully in sections 1.401(a)(9)-1, 1.401(a)(9)-2, and 1.408 of the proposed Income Tax Regulations. These regulations can be read in many libraries and IRS offices. Minimum Distribution Incidental Benefit (MDIB) RequirementDistributions from a traditional IRA during the owner's lifetime must satisfy the MDIB requirement. This is to ensure that the IRA is used primarily to provide retirement benefits to the IRA owner. After the owner's death, only "incidental" benefits are expected to remain for distribution to the owner's beneficiary (or beneficiaries). Spouse is beneficiary. If your spouse is your only beneficiary, you will satisfy the MDIB requirement if you satisfy the general minimum distribution requirements discussed earlier. If you have two or more beneficiaries, including your spouse, the rule for spouses in the preceding paragraph applies only if your spouse's portion of your benefit is in a separate account. Nonspouse beneficiary more than 10 years younger. If you have a beneficiary other than your spouse who is more than 10 years younger than you, there are three additional steps to figure your required minimum distribution that satisfies the MDIB requirement.
Example 2. Assume the same facts as in Example 1, earlier, except that Joe's beneficiary is his brother. Because Joe's beneficiary is not his spouse, he must use the Table for Determining Applicable Divisor for MDIB (in Appendix E) and compare the applicable divisor from that table to the life expectancy determined using Table II (Joint Life and Last Survivor Expectancy) in Appendix E. Joe must use the smaller number from the tables. In this example, the required minimum distribution for 2000 is $1,146 ($29,000 divided by 25.3) instead of the $1,000 computed in Example 1. Joe's adjusted December 31, 2000, account balance to be used for determining the required distribution for 2001 is $28,579 ($29,725 minus $1,146). Example 3. Assume the same facts as in Example 2, except that, because Joe's IRA terms do not provide otherwise, he must refigure life expectancies to figure his required minimum distribution for 2001. Joe's minimum distribution for 2001 is figured by dividing his adjusted account balance as of December 31, 2000 ($28,579) by his and his brother's joint life and last survivor expectancy. Their joint life and last survivor expectancy can be refigured as follows:
Effect of the IRA owner's death. The MDIB requirement does not apply to distributions in years after the death of the original IRA owner. See If you die and your designated beneficiary is not your spouse under Refiguring life expectancy elected, earlier.
Solutions are dependent upon facts & circumstances, law and the objectives. These elements vary from one time to another, from one circumstance to another and from from person or entity to another I will be adding a spreadsheet for compiling the information, and links to the tables published by the IRS. There will also be some "plain English" instructions to help.
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