Using the MDIB Table for RMD Calulations

[Guest David Hammond CISP]

Hi Everyone,

I need some help in properly interpreting the use of the MDIB Tables involving a RMD calculation.

Assume the following: An IRA owner age 70 1/2 (attained age of 70)and a non-spose beneficiary with an attained age of 42.

IRA owner elects the "joint life expectncy" option and the "Term Certain" method on BOTH individuals before the first RMD.

According to MDIB rules, the non-spouse beneficiary is "age adjusted" to appear to be age 60 for RMD calculation purposes. The life expectancy factor used for the first Distribution Calendar Year's RMD is 26.2 as taken from the MDIB Table (after compasrison with the standard J/L/E tables on an unadjusted age basis).

Here's the question. For subsequent RMD's in future years, is the original divisor of 26.2:

1. Reduced by one for each elapsed year (to reflect the "Term Certain" election on both lives made by the owner) resutling in a divisor of 25.2 for the second year, 24.2 for the following year and so on...

OR

2. Newly determined directly from the MDIB Table for each subsequent year resulting in the divisor of 25.3 for the second year, 24.4 for the following year, etc.

Concensus of opinion is that option #2 applies (even though using this method acutally introduces an element of "life expectancy recalculation" on the non-spouse beneficiary which is prohibited by the RMD Regs).

As one person told me, "The MDIB is a "table" and not a "method" so use it and don't think too much about it. Its how the IRS chose to implement MDIB rules."

The differences are subtle but important to understand especially as balances for RMD's skyrocket and people become more sophisticated about their options.

So if any of you have some factual information on this aspect of RMD's and MDIB's, I'd welcome hearing from you by e-mail on posted on the list.

Confused? I am.

Thanks

David H.

[BPickerCPA]

David,

As far as I am concerned, the answer is #2. I had a running battle with a software program that was computing the divisor based upon the first method, but I finally got them to admit that they are wrong and change the program.

MDIB has nothing to do with the recalculation/term certain election. The rule in the regs is that you first determine your divisor using the actual age of the beneficiary and the method chosen at age 70½. You then compare that divisor with the divisor in the MDIB table for the attained age of the IRA holder, and use the smaller divisor.

It is possible that an IRA holder will start off using the MDIB table, but in a later year the actual life expectancy divisor will be the smaller number, in which case the MDIB divisor would NOT be used.

Barry

[Guest John L. Olsen, CLU, ChFC]

I fought the same battle Barry did. And the result was the same. The rules say that you must COMPARE the divisor obtained in the "regular way" with that obtained from the MDIB Table and use the SMALLER divisor.

As Barry says, there may (but not necessarily will) come a point at which the MDIB divisor will be larger. You may get different results if participant recalculates LE from those if Term Certain was elected.

In this facts situation, the divisors are the same, regardless of the recalculation election, and are, in each year, identical to those from the MDIB table.

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO