Law Offices of David L. Silverman
2001 Marcus Avenue, Lake Success, NY 11042 (516) 466-5900
Skip to content
  • Home
  • Lawyers
    • David L. Silverman, Esq.
  • Practice
    • Tax Planning and Tax Litigation
    • Estate Planning & Asset Protection
    • Civil Litigation
    • Wills, Trusts & Estate Administration
    • Elder Law
    • Real Estate Transactions
  • Library
    • Mailing List Request
  • Recent Articles
  • Tax News & Comment
    • Tax News & Comment – April 2017
    • Tax News & Comment – May 2016
    • Tax News & Comment — March 2015
    • Tax News & Comment — August 2014
    • Tax News & Comment — February 2014
    • Tax News & Comment — October 2013
    • Tax News & Comment — May 2013
    • Tax News & Comment — February 2013
    • Tax News & Comment — October 2012
    • Tax News & Comment — April 2012
    • Tax News & Comment — August 2011
    • Tax News & Comment — April 2011
    • Tax News & Comment — June 2010
    • Tax News & Comment Archives
  • CPE Lectures
    • Summer 2016 Lectures
    • 2014 Autumn Lecture Series
      • September 9 — Importance of Trusts in Estate Planning
      • September 23 — The Last Will: A Final Profound Statement
      • October 7 — Emergence of Delaware Statutory Trusts in Like Kind Exchanges
      • October 21 — Post-Mortem Estate & Income Tax Planning
      • November 4 — Elder Law Planning: An Introduction
      • November 18 — NYS Tax Penalty Abatement
      • December 2 — IRS Private Letter Ruling Requests
      • December 16 — NYS Trust, Estate & Gift Tax Update
    • Join Email List
  • Consultations
    • Legal Fees
  • Resources
    • Estate Planning
      • Wills
      • Trusts
      • Powers of Attorney
      • Health Care Proxies
      • Living Wills
    • Estate Tax Planning
    • Probate & Estate Administration
      • Admission of Will to Probate
        • Letters Testamentary
      • Administering the Estate
        • Marshalling Estate Assets
        • Estate Accounting
      • Will Contests
    • Federal Tax Litigation
      • Tax Court Litigation
        • Federal District Court Appeals
      • Federal District Court Refund Litigation
    • New York State Tax Litigation
      • Conciliation Conference
      • Division of Tax Appeals
        • Motions for Summary Determination
      • Tax Appeals Tribunal
      • Article 78 Appeals to Appellate Division, Third Department
      • Appeals to the Court of Appeals
      • Declaratory Relief Against the Department of Taxation
    • Asset Protection
      • Asset Protection Trusts
      • Prenuptial Agreements
      • Divorce
    • Elder Law
    • Income Tax Planning
      • Like Kind Exchanges
      • Tax News & Comment
        • Tax News & Comment – April 2017
        • Tax News & Comment Mailing List Request
    • Civil Litigation
    • International Tax
  • Contact
    • Building Map & Plan
    • Directions to 2001 Marcus Avenue, Lake Success NY
← HURRICANE AID AND NEW TAX EXPENDITURES THREATEN PROPOSED TAX CUTS; DEFICIT MAY INCREASE
Tax Court Bars Late Alternate Valuation Election →

Tax Planning for IRA Distributions

Posted on March 15, 2010 by David L. Silverman, J.D., LL.M. (Taxation)

IRA withdrawals may begin at age 55½ without penalty and must begin by age 70½, which is the “Required Beginning Date” (“RBD”). A rule of administrative convenience permits individuals who turn 70½ in a given year to defer distributions until April 1 of the following year.  However, in that case a second distribution would be required by December 31 of the same year.

Once the RBD arrives, the tax-free ride is over: the owner may distribute the entire IRA but must take at least the minimum required distribution (“MRD”). If an insufficient distribution is made, or if no distribution is made, a 50% excise tax is imposed on the difference between the MRD and the actual distribution.

The MRD is itself a function of the amount of the IRA on December 31 of the preceding year, and the owner’s life expectancy. If a designated beneficiary (who takes nothing until the owner dies) is named, the MRD may be based on a joint and survivor life expectancy. Naming a designated beneficiary after the RBD will have legal but not tax significance — the MRD will still be based on the life expectancy of the owner alone. Naming multiple designated beneficiaries before the RBD is permissible, but the payout will be determined by the joint and survivor life expectancy of the owner and the oldest designated beneficiary. Similarly, a beneficiary designation may be changed after the RBD, but the MRD will be calculated based on the original beneficiary designation. It is therefore critical that a designated beneficiary must be named before the RBD if the longest payout period is desired.

In order to prevent excessive deferrals during the owner’s lifetime after the RBD, the Code provides that a non-spouse beneficiary is deemed to be no more than ten years younger than the owner for purposes of calculating their joint life expectancy. However, after the owner dies, the true life expectancy of the beneficiary may be used to redetermine the MRD.

The life expectancy of the IRA owner and designated beneficiary, if there is one, may be calculated in either of two ways:

¶    Under the “term certain” method, the initial life expectancy of the owner and the designated beneficiary (if named) are reduced by one year in each succeeding year. If the owner dies after the RBD having failed to name a designated beneficiary, the heirs may continue to receive distributions based on the life expectancy of the owner prior to his death. The principal disadvantage of the term certain method is that IRA benefits will expire in a fixed number of years, regardless of whether the owner and spouse are still alive. This could result in hardship.

¶  Under the “recalculation” method, the life expectancy is recalculated each year. Compared to the term certain method, the recalculation method will result in longer payouts (and lower MRDs) because the life expectancy of a person 80½ years of age is considerably higher than the life expectancy of a person 70½, reduced by ten years.  (Note: If the designated beneficiary is the spouse, then she may also recalculate her life expectancy each year for purposes of determining the joint life expectancy. However, the life expectancy a non-spouse beneficiary must be calculated using the term certain method.)

Although the recalculation method appears attractive, certain risks inhere: First, if no designated beneficiary has been named by the RBD, the recalculated life expectancy of an owner who dies after the RBD is zero. Consequently, the heirs would be required to liquidate the IRA at the owner’s death; and second, even if a spouse has been named designated beneficiary, the death of the owner during the payout period will result in the MRD being based on the spouse’s recalculated life expectancy, which would be less than the joint life expectancy calculated under the term certain method. Fortunately, the Code permits the owner and designated beneficiary to utilize different methods, which will result in a longer payout than if both had chosen the term certain method.

The death of the owner prior to the RBD must also be considered. In that event, the designated beneficiary may take distributions over the owner’s life expectancy, beginning in the year of the owner’s death. If the designated beneficiary is also the owner’s spouse, the rules are more liberal: she need not take distributions until the owner would have turned 70½. The spouse may also convert the IRA to her own, in which case she could take distributions based on her own RBD, and could also name her own beneficiaries.

40.756035 -73.689809

Share this:

  • Email
  • Print
  • Twitter
  • LinkedIn
  • Facebook

Like this:

Like Loading...

Related

This entry was posted in Pension & Retirement Accounts and tagged Individual Retirement Account, IRA, Minimum Required Distribution, MRD, RBD, Required Beginning Date. Bookmark the permalink.
← HURRICANE AID AND NEW TAX EXPENDITURES THREATEN PROPOSED TAX CUTS; DEFICIT MAY INCREASE
Tax Court Bars Late Alternate Valuation Election →
  • Search by Category

  • Natural Language Search

  • Recent Articles & Treatises

    • Registration now open for September 17, 2019 CPE Seminar, “IRC Sec. 199A: Wasn’t the Code to be Simplified?” August 26, 2019
    • A Journey Through IRC Section 199A: Wasn’t the Code to be Simplified? July 25, 2019
    • Tax News & Comment — August 2019 July 25, 2019
    • Tax News & Comment – April 2017 March 13, 2017
    • Tax News & Comment — May 2016 May 14, 2016
    • FROM WASHINGTON & ALBANY — Current Election Probabilities; Tax Plans of Trump and Clinton May 13, 2016
    • FROM FEDERAL AND NYS COURTS: Recent Developments & 2015 Decisions of Note May 13, 2016
    • IRS & NYS DTF MATTERS: Recent Developments & 2015 Regs. & Rulings of Note May 13, 2016
    • Creating and Maintaining Flexibility in Wills and Trusts May 13, 2016
    • Escaping the Quandary Posed by Unreported Foreign Accounts May 13, 2016
    • Like Kind Exchanges Alive and Well: An Update May 13, 2016
  • Most Popular

    • Executor and Trustee Commissions Under NY EPTL
    • Legal Basis for Seeking Abatement of New York State Tax Penalties
    • Letters Testamentary
    • Depreciation Recapture
    • Installment Sales in Real Estate Transactions
    • Installment Sale Reporting of Deferred Exchange Boot
    • The Decedent's Final Income Tax Return
    • Defeating The Right of Election in EPTL § 5-1.1-A
    • Use of Disclaimers in Pre and Post-Mortem Estate Planning
    • Rev. Rul. 85-13: Is There a Limit to Disregarding Disregarded Entities?
  • Categories

  • Search Our Entire Library

  • March 2010
    S M T W T F S
     123456
    78910111213
    14151617181920
    21222324252627
    28293031  
    « Feb   Apr »
  • Federal Tax Links

    • After Death Planning: Minimizing Tax Liabilities (searchable text)
    • CCH Tax Legislaton Coverage
    • Federal Income Tax Regs. Vol. 2; 1.301-1 — 1.483-4
    • Federal Income Tax Regulations
    • Federal Tax Research (legal bitstream)
    • Federal Tax Research Guide
    • Internal Revenue Code
    • Internal Revenue Code Treasury Regulations
    • Internal Revenue Service
    • International Estate Planning
    • IRS Forms & Publications
    • Legal Bitstream (tax cases, IRS rulings, etc.)
    • Like Kind Exchange Calculator
    • Tax News & Comment — February 2013
    • Tax Research Resources (****)
    • Treasury Regulations
    • U.S. Tax Court
    • Univ. of Miami Heckerling Report (2013)
    • West Federal Taxation 2008: Corporations, Partnerships, Estates, & Trusts
  • New York State Tax Links

    • New York State (Searchable) Sales and Use Tax Regulations
    • New York Tax Law
    • NYS Department of Taxation & Finance
    • NYS Division of Tax Appeals
    • NYS Tax Forms & Instructions
    • NYS-DTF News & Forms
    • Tax Appeals Tribunal Rules of Practice and Procedure
  • New York State Legal Links

    • Consolidated Laws of New York
    • New York Codes, Rules and Regulations (NYCRR)
    • New York Law Journal
    • New York Official Reports
    • NYS Bar Association
    • NYS Courts (ecourts)
    • NYS Department of State
    • Rules of Practice, Appellate Division, Third Department
  • New York City Tax & Legal Links

    • ACRIS
    • NYC Administrative Code
    • NYC Department of Finance
    • NYC Tax Appeals Tribunal
  • Twitter

    • Registration now open for September 17, 2019 CPE Seminar, “IRC Section 199A: Wasn’t the Code to be Simplified?” nytaxattorney.com/2019/08/26/reg… 3 years ago
    • IRC Section 199A Lecture Registration nytaxattorney.com/2019/08/19/irc… 3 years ago
    • 199A.7.30 nytaxattorney.com/2019/07/30/199… 3 years ago
    • cv nytaxattorney.com/2019/07/25/cv/ 3 years ago
    • CPE nytaxattorney.com/2019/07/25/cpe/ 3 years ago
    • A Journey nytaxattorney.com/2019/07/25/a-j… 3 years ago
    • A Journey Through IRC Section 199A: Wasn’t the Code to be Simplified? nytaxattorney.com/2019/07/25/a-j… 3 years ago
    • Tax News & Comment — August 2019 nytaxattorney.com/2019/07/25/tax… 3 years ago
    • Tax News & Comment — August 2019 nytaxattorney.com/2019/07/25/tax… 3 years ago
    • Tax News & Comment — August 2019 nytaxattorney.com/2019/07/25/tax… 3 years ago
    Follow @taxnewscomment
Law Offices of David L. Silverman
Blog at WordPress.com.
  • Follow Following
    • Law Offices of David L. Silverman
    • Join 36 other followers
    • Already have a WordPress.com account? Log in now.
    • Law Offices of David L. Silverman
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Copy shortlink
    • Report this content
    • View post in Reader
    • Manage subscriptions
    • Collapse this bar
%d bloggers like this: