RMD factor below 1.0

[TPATC]

Participant died in 2001.  Spouse continues the MRDs each year until she dies in 2007.  Daughter continues RMDs each year based on the life expectance of the spouse as of the spouse's birthday in the year of death, reduced by one each year.

Spouse's single life expectancy in 2007 was 11.4.  Therefore, factor for 2018 is 0.4.  I am assuming this converts to 1.0.

For discussion purposes, account balance at 12/31/2017 was $100,000, and balance as of today is $105,000.

My question is, must the daughter close the account in full by 12/31/2018, or can she take the 12/31/2017 balance of $100,000 as the RMD by 12/31/2018, and carry over the earnings each year with continued RMDs on that substantially declining balance?  

 

[ETA Consulting LLC]

Your question would've been a lot more interesting (e.g. more interestinger) had the balance of today been greater than $250K ($100K/.4).

For consistency, you cannot impose a "1" when the calculation is based on ".4" and then turn around and extend based on that lower number.

Interesting concept though. 

Good Luck!

[ESOP Guy]

Just spitballing here....

The reason the RMD rules exist is to create a finite number of years the money can stay in a tax deferred account.  I think the end point of these funds going tax free has just happened.  

[jpod]

ESOP Guy's logic is unassailable.  I would be surprised if there isn't something in the regulations to confirm that.  If not, applied literally the RMD for 2018 would be only $100,000, and if you invested the $5,000 in a money market or a savings account or a CD or something else guaranteed not to lose principal then you would never have to close the account. 

[chc93]

2 hours ago, ESOP Guy said:

Just spitballing here....

The reason the RMD rules exist is to create a finite number of years the money can stay in a tax deferred account.  I think the end point of these funds going tax free has just happened.  

Said another way, the $100,000 is divided by 0.4, and the RMD is $250,000.  But the account only has $105,000, so the RMD is $105,000 and the account is closed.

Similar to a vested account balance.  If the vested account balance is less than the RMD, only the vested account balance is distributed.

[jpod]

chc93, good point.  But, what if the account had grown to $250,001?  Clearly the divisor for the following year is not negative 0.4.  I don't have the curiosity to look at the regulations to see if this is addressed, maybe someone else does. 

[chc93]

3 hours ago, jpod said:

chc93, good point.  But, what if the account had grown to $250,001?  Clearly the divisor for the following year is not negative 0.4.  I don't have the curiosity to look at the regulations to see if this is addressed, maybe someone else does. 

Continuing this thought... the divisor goes to zero in the following year (my idea that the divisor cannot be negative).  Then, the account balance, whatever it is, is divided by zero, and since the full account balance gotta be less than infinity, the full account balance is the RMD and the account is closed.

[Bob the Swimmer]

I might be missing something here---but the Table does not show a 0.4 to my knowledge----my Dad just turned 100 and he still has a factor of 2.9 ---wonder where does the .4 come from ? (I'm slow on Mondays).

[Tom Poje]

Bob-  last sentence of

1.401(a)(9)-5 Q-5(c) ...in subsequent calendar years, the applicable distribution period is reduced by 1 for each calendar year that has elapsed after the calendar year immediately following the calendar year following the employee's death

 

so if the factor was 8.4 in 2010 then in 2011 the factor is now 7.4.....

as somewhat noted above, at some point you have the following

balance = 15,000 factor = 1.4 so min distr = 10,714

following year balance = 4286 if you divide by .4 you get 10,715 as a min distrib, but the balance is only 4286, so that is all the person can get and now the balance is 0

...........

I suspect in most cases folks don't bother with this and simply cash out well before this happens. after all, this is only the minimum required that has to be taken