Pioneer Investments: Required Minimum Distribution Rules for Your Beneficiaries


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Required Minimum Distribution Rules for Your Beneficiaries

Beneficiaries who inherit your retirement plan account must take Required Minimum Distributions. The payout options that are available to your beneficiaries depend on two factors:

  1. Whether you die before or after your Required Beginning Date
  2. Who remains listed as a designated beneficiary on September 30 of the year following the year of your death

Your beneficiaries have different payout options, depending on whether death occurs before or after your Required Beginning Date. For most retirement account owners, this is April 1 of the year following the year you turn 70½.

Your RMD and Your Choice of Beneficiary

During your lifetime, you can name anyone as your beneficiary, including your spouse, your children or other individuals. You also can choose an entity such as a charity, trust or your estate. With the exception of a spouse who is more than 10 years younger (see RMD Tip), your beneficiary designation has no impact on how quickly your retirement plan must be paid out during your lifetime.

After your beneficiary inherits your account, however, who you have designated as beneficiary determines how quickly the assets must be paid out. By naming younger beneficiaries, such as children or grandchildren, you can potentially stretch the tax-deferral of your retirement assets over decades.

This stretching is possible because the IRS rules allow beneficiaries to use their own individual life expectancies for calculating their payouts after they inherit your IRA. Keep in mind that your beneficiaries can always take more than the RMD, just as you can during your lifetime.

If you are designating a beneficiary other than an individual, special requirements may apply. Please contact your investment professional or Pioneer's Retirement Plans Account Information line at 1-800-622-0176, to request more information.

RMD tip:
Make sure you review your beneficiary designations on a regular basis. If your circumstances change you can update your beneficiary designation to reflect those changes. Talk to your investment professional or call Pioneer for more information.

Under the new IRS Final Regulations, your beneficiaries that will be used for life expectancy purposes are determined on September 30 of the year following the year of your death. There are two very important dates that your beneficiary(ies) should be aware of if they are considering taking payouts based upon life expectancy and you have either named multiple beneficiaries or have listed a charity, estate, certain trusts, or any other entity as one of your primary beneficiaries:

  • The deadline for removing "non-individual" beneficiaries is September 30 of the year following your death. (See Cashing-Out Beneficiaries.)
  • Multiple beneficiaries wishing to use their individual life expectancy must split the account by December 31 of the year following your death. (See Establishing Separate Accounts for Each Beneficiary.)

Death Before Your Required Beginning Date

Beneficiary Beneficiary Options Deadlines
Spouse Rollover to IRA in surviving spouse's name. Rollover at any time.²
Take payouts from inherited IRA based on surviving spouse's life expectancy¹ - if Plan allows. Begin payouts the later than December 31 of the year following the death of plan owner or December 31 of the year deceased spouse would have reached 70½.3
Deplete account in 5 years. Distribute entire account by December 31 of the fifth anniversary year of the plan owner's death.
Children, grandchildren, or other individuals Directly rollover to Inherited IRA² - if plan allows4 (Option not available to IRA beneficiaries) Conservatively by December 31 of the year following the death of the plan owner to ensure the availability of the life expectancy payout option in the Inherited IRA. Otherwise, 5-year rule may apply to Inherited IRA. Note: This deadline does not apply if the plan provides for life expectancy payouts.
Take payouts based on beneficiary's life expectancy.5 Multiple beneficiaries' payouts are based on each beneficiary's age if account is split timely. Otherwise, payouts based on oldest beneficiary's life expectancy. Payouts must begin by December 31 of the year following plan owner's death. Generally, the account must be split by December 31 of the year following plan owner's death.
Deplete account in 5 years. Distribute entire account by December 31 of the fifth anniversary year of the plan owner's death.
Estate, Charity, Trust6, or no beneficiary named7 Deplete account in 5 years. Distribute entire account by December 31 of the fifth anniversary year of the plan owner's death.
 
1 If spouse is the sole beneficiary, the life expectancy factor is determined each year from IRS Table I - Single Life Expectancy. Upon the spouse's death, the life expectancy factor is determined in the year of the spouse's death (IRS Table I) and then reduced by one for each subsequent year. If the spouse is not the sole beneficiary, life expectancy factor is determined initially from IRS Table I in the year following plan owner's death and then reduced by one for each subsequent year.
2 Amounts attributable to RMD (including any undistributed amounts from previous years) are not eligible to be rolled over.
3 Option to delay payout until December 31 of the year the plan owner would have turned 70½ is only available if spouse is sole beneficiary.
4 Non-spouse beneficiaries of qualified plans, 403(b) arrangements and governmental 457(b) plans may be eligible to directly rollover to an Inherited IRA, provided that the plan allows. (Additional restrictions may apply. Contact the plan administrator.)
5 Life expectancy factor determined in the year following plan owner's death (see IRS Table I) and reduced by one for each subsequent year.
6 Certain trusts (including testamentary trusts) may allow the trust beneficiary to be treated as the designated beneficiary of account if certain requirements are met. For qualified plans, 403(b) arrangements, and governmental 457(b) plans, trust beneficiary may be able to directly rollover to an Inherited IRA, provided the plan allows.
7 If no beneficiary is named, check plan document for default beneficiary provision, which may result in other payout options.

Death After Your Required Beginning Date

Beneficiary Beneficiary Options Deadlines
Spouse Rollover to IRA in surviving spouse's name. Rollover at any time.³
Take payouts using the greater of: the surviving spouse's¹ or plan owner's² life expectancy - if plan allows Begin payouts by December 31 of the year following plan owner's death.4
Children, grandchildren, or other individuals Directly rollover to Inherited IRA³ - if plan allows5. (Option not available to IRA beneficiaries) Directly rollover at any time.
Take payouts using the greater of: beneficiary's life expectancy6 or plan owner's life expectancy.² Payouts must begin by December 31 of the year following plan owner's death. Generally, the account must be split by December 31 of the year following plan owner's death.4
Estate, Charity, Trust7, or no beneficiary named8 Take payouts based on the plan owners's life expectancy.2 Begin payouts no later than December 31 of the year following plan owner's death.4
 
1 If spouse is the sole beneficiary, the life expectancy factor is determined each year from IRS Table I - Single Life Expectancy. Upon the spouse's death, the life expectancy factor is determined in the year of the spouse's death (IRS Table I) and then reduced by one for each subsequent year. If spouse is not the sole beneficiary, life expectancy factor is determined initially from IRS Table I in the year following plan owner's death and then reduced by one for each subsequent year.
2 Life expectancy factor determined in the year of death and reduced by one for each subsequent year.
3 Amounts attributable to RMD (including any undistributed amounts from previous years) are not eligible to be rolled over.
4 The RMD for the year of death must be taken by the beneficiary if not fulfilled by the plan owner.
5 Non-spouse beneficiaries of qualified plans, 403(b) arrangements and governmental 457(b) plans may be eligible to directly rollover to an Inherited IRA, provided that the plan allows. (Additional restrictions may apply. Contact the plan administrator.)
6 Life expectancy factor is determined in the year following plan owner's death and reduced by one for each subsequent year. Multiple beneficiaries' payouts are based on each beneficiary's age if account is split timely. Otherwise, payouts based on oldest beneficiary's life expectancy.
7 Certain trusts (including testamentary trusts) may allow the trust beneficiary to be treated as the designated beneficiary of retirement account if certain requirements are met. For qualified plans, 403(b) arrangements, and governmental 457(b) plans, trust beneficiary may be able to directly rollover to an Inherited IRA, provided the plan allows.
8 If no beneficiary is named, check plan document for default beneficiary provision, which may result in other payout options.

Cashing-Out Beneficiaries

The presence of a charity, estate, certain trusts, or any other entity as one of your primary beneficiaries may limit the payout options available to your other beneficiaries.

Under the final IRS Regulations, if your beneficiaries wish to remove any "non-individual" beneficiaries (either by disclaimer* or distribution) this must be accomplished by September 30 following the year in which you* die.

You may wish to split your account into separate accounts during your lifetime to ensure that each individual beneficiary can use his or her own life expectancy as the basis for their payouts.

* Generally, to be considered a qualified disclaimer, your beneficiary must disclaim in writing within nine months of your death. Additional requirements apply. Consult your tax advisor.

Establishing Separate Accounts for Each Beneficiary

If you have named multiple beneficiaries on your account, they can take their RMDs based on their own individual life expectancies, provided they split your account into separate accounts by December 31 of the year following your death.

If splitting does not happen by this deadline, the life expectancy of your oldest beneficiary must be used as the factor in the payout calculation. You may also split your IRA account into separate accounts - each with different beneficiaries - during your lifetime.

Remember that the penalty for not taking out your RMD each year is 50% of the amount that is under-withdrawn. The penalty applies to you during your lifetime, as well to those who inherit your account. Work with your investment professional and Pioneer to make sure you understand how to take your RMD each year.

RMD tip:
Setting up separate accounts can help minimize taxes and maximize the deferral on inherited IRAs. For example, if you named two beneficiaries on your account - your son, age 49 and grandson, age 10 - each could use his own life expectancy if the account is split by the deadline. For the grandson, this means potentially stretching his life expectancy payouts for nearly 73 years, versus taking them out over your son's life expectancy of only 35 years.

This general information about RMDs and how Pioneer can help you comply with IRS requirements is not intended to provide you with specific tax or retirement planning advice.

We suggest you contact your investment professional or a qualified tax adviser before making any decisions about how and when to begin taking your RMD.

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