Required Distributions from Retirement Plans

DEPARTMENT OF THE TREASURY
Internal Revenue Service (IRS) 26 CFR Parts 1 and 54 RIN 1545-AY69,
1545-AY70 [REG-130477-00;REG-130481-00]

TITLE: Required Distributions from Retirement Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations relating to
required minimum distributions from qualified plans, individual
retirement plans, deferred compensation plans under section 457, and
section 403(b) annuity contracts, custodial accounts, and retirement
income accounts. These regulations will provide the public with
guidance necessary to comply with the law and will affect
administrators of, participants in, and beneficiaries of qualified
plans; institutions that sponsor and individuals who administer
individual retirement plans, individuals who use individual
retirement plans for retirement income, and beneficiaries of
individual retirement plans; and employees for whom amounts are
contributed to section 403(b) annuity contracts, custodial accounts,
or retirement income accounts and beneficiaries of such contracts
and accounts.

DATES: Written and electronic comments must be received by April 19,
2001. Outlines of topics to be discussed at the public hearing
scheduled for June 1, 2001, at 10 a.m. must be received by May 11,
2001.

ADDRESSES: Send submissions to: CC:M&SP:RU
(REG-130477-00/REG130481-00) room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions
may be hand delivered Monday through Friday between the hours of 8
a.m. and 5 p.m. to: CC:M&SP:RU (REG-130477-00/REG-130481-00),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue
NW, Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the "Tax Regs" option
of the IRS Home Page, or by submitting comments directly to the IRS
Internet site at: http://www.irs.gov/tax_regs/reglist.html. The
public hearing on June 1, 2001, will be held in the IRS Auditorium
(7th Floor), Internal Revenue Building, 1111 Constitution Avenue NW,
Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Cathy
A. Vohs, 202-622-6090; concerning submissions and the hearing,
and/or to be placed on the building access list to attend the
hearing, Guy Traynor, 202-622-7180 (not toll-free numbers).

Paperwork Reduction Act

The collections of information contained in these proposed
regulations have been reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number 1545-0996, in conjunction with
the notice of proposed rulemaking published on July 27, 1987, 52 FR
28070, REG-EE-113-82, Required Distributions From Qualified Plans
and Individual Retirement Plans, and control number 1545-1573, in
conjunction with the notice of proposed rulemaking published on
December 30, 1997, 62 FR 67780, REG-209463-82, Required
Distributions from Qualified Plans and Individual Retirement Plans.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
valid control number assigned by the Office of Management and
Budget.

Books and records relating to the collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
U.S.C. 6103.

Background

This document contains proposed amendments to the Income Tax
Regulations (26 CFR Part 1) and to the Pension Excise Tax
Regulations (26 CFR Part 54) under sections 401, 403, 408, and 4974
of the Internal Revenue Code of 1986. It is contemplated that
proposed rules similar to those in these proposed regulations
applicable to section 401 will be published in the near future for
purposes of applying the distribution requirements of section
457(d). These amendments are proposed to conform the regulations to
section 1404 of the Small Business Job Protection Act of 1996
(SBJPA) (110 Stat. 1791), sections 1121 and 1852 of the Tax Reform
Act of 1986 (TRA of 1986) (100 Stat. 2464 and 2864), sections 521
and 713 of the Tax Reform Act of 1984 (TRA of 1984) (98 Stat. 865
and 955), and sections 242 and 243 of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) (96 Stat. 521). The regulations
provide guidance on the required minimum distribution requirements
under section 401(a)(9) for plans qualified under section 401(a).
The rules are incorporated by reference in section 408(a)(6) and (b)
(3) for individual retirement accounts and annuities (IRAs), section
408A(c)(5) for Roth IRAs, section 403(b)(10) for section 403(b)
annuity contracts, and section 457(d) for eligible deferred
compensation plans.

For purposes of this discussion of the background of the regulations
in this preamble, as well as the explanation of provisions below,
whenever the term employee is used, it is intended to include not
only an employee but also an IRA owner.

Section 401(a)(9) provides rules for distributions during the life
of the employee in section 401(a)(9)(A) and rules for distributions
after the death of the employee in section 401(a)(9)(B). Section
401(a)(9)(A)(ii) provides that the entire interest of an employee in
a qualified plan must be distributed, beginning not later than the
employee’s required beginning date, in accordance with regulations,
over the life of the employee or over the lives of the employee and
a designated beneficiary (or over a period not extending beyond the
life expectancy of the employee and a designated beneficiary).

Section 401(a)(9)(C) defines required beginning date for employees
(other than 5- percent owners and IRA owners) as April 1 of the
calendar year following the later of the calendar year in which the
employee attains age 70½ or the calendar year in which the
employee retires. For 5-percent owners and IRA owners, the required
beginning date is April 1 of the calendar year following the
calendar year in which the employee attains age 70½, even if
the employee has not retired.

Section 401(a)(9)(D) provides that (except in the case of a life
annuity) the life expectancy of an employee and the employee’s
spouse that is used to determine the period over which payments must
be made may be redetermined, but not more frequently than annually.

Section 401(a)(9)(E) provides that the term designated beneficiary
means any individual designated as a beneficiary by the employee.

Section 401(a)(9)(G) provides that any distribution required to
satisfy the incidental death benefit requirement of section 401(a)
is a required minimum distribution.

Section 401(a)(9)(B)(i) provides that, if the employee dies after
distributions have begun, the employee’s interest must be
distributed at least as rapidly as under the method used by the
employee.

Section 401(a)(9)(B)(ii) and (iii) provides that, if the employee
dies before required minimum distributions have begun, the
employee’s interest must be either: distributed (in accordance with
regulations) over the life or life expectancy of the designated
beneficiary with the distributions beginning no later than 1 year
after the date of the employee’s death, or distributed within 5
years after the death of the employee. However, under section 401(a)
(9)(B)(iv), a surviving spouse may wait until the date the employee
would have attained age 70½ to begin taking required minimum
distributions.

Comprehensive proposed regulations under section 401(a)(9) were
previously published in the Federal Register on July 27, 1987, 52 FR
28070. Many of the comments on the 1987 proposed regulations
expressed concerns that the required minimum distribution must be
satisfied separately for each IRA owned by an individual by taking
distributions from each IRA. In response, Notice 88-38 (1988-1 C.B.
524) provided that the amount of the required minimum distribution
must be calculated for each IRA, but permitted that amount to be
taken from any IRA. Amendments to the 1987 proposed regulations
published in the Federal Register on December 30, 1997, 62 FR 67780,
responded to comments on the use of trusts as beneficiaries. Notice
96-67 (1996-2 C.B. 235) and Notice 97-75 (1997-2 C.B. 337) provided
guidance on the changes made to section 401(a)(9) by the SBJPA. The
guidance in Notice 88-38, Notice 96-67, and Notice 97-75 is
incorporated in these proposed regulations with some modifications.

Even though the distribution requirements added by TEFRA were
retroactively repealed by TRA of 1984, the transition election rule
in section 242(b) of TEFRA was preserved. Notice 83-23 (1983-2 C.B.
418) continues to provide guidance for distributions permitted by
this transition election rule. These proposed regulations retain the
additional guidance on the transition rule provided in the 1987
proposed regulations. As discussed below, in response to extensive
comments, the rules for calculating required minimum distributions
from individual accounts under the 1987 proposed regulations have
been substantially simplified. Certain other 1987 rules have also
been simplified and modified, although many of the 1987 rules remain
unchanged. In particular, due to the relatively small number of
comments on practices with respect to annuity contracts, and the
effect of the 1987 proposed regulations on these practices, the
basic structure of the 1987 proposed regulation provisions with
respect to annuity payments is retained in these proposed
regulations. The IRS and Treasury are continuing to study these
rules and specifically request updated comments on current practices
and issues relating to required minimum distributions from annuity
contracts.

Explanation of Provisions

Overview

Many of the comments on the 1987 proposed regulations addressed the
rules for required minimum distributions during an employee’s life,
including calculation of life expectancy and determination of
designated beneficiary. In particular, comments raised concerns
about the default provisions, election requirements, and plan
language requirements. In general, the need to make decisions at age
70½, which under the 1987 proposed regulations would bind the
employee in future years during which financial circumstances could
change significantly, was perceived as unreasonably restrictive. In
addition, the determination of life expectancy and designated
beneficiary and the resulting required minimum distribution
calculation for individual accounts were viewed as too complex.

To respond to these concerns, these proposed regulations would make
it much easier for individuals -- both plan participants and IRA
owners -- and plan administrators to understand and apply the
minimum distribution rules. The new proposed regulations would make
major simplifications to the rules, including the calculation of the
required minimum distribution during the individual’s lifetime and
the determination of a designated beneficiary for distributions
after death. The new proposed regulations simplify the rules by


 Providing a simple, uniform table that all employees can use to
determine the minimum distribution required during their lifetime.
This makes it far easier to calculate the required minimum
distribution because employees would

	

	
 no longer need to determine their beneficiary by their
	required beginning date,

	
 no longer need to decide whether or not to recalculate
	their life expectancy each year in determining required
	minimum distributions, and

	
 no longer need to satisfy a separate incidental death
	benefit rule.
	


 Permitting the required minimum distribution during the
employee’s lifetime to be calculated without regard to the
beneficiary’s age (except when required distributions can be reduced
by taking into account the age of a beneficiary who is a spouse more
than 10 years younger than the employee).

 Permitting the beneficiary to be determined as late as the end
of the year following the year of the employee’s death. This allows

	

	
 the employee to change designated beneficiaries after
	the required beginning date without increasing the required
	minimum distribution and

	
 the beneficiary to be changed after the employee’s
	death, such as by one or more beneficiaries disclaiming or
	being cashed out.
	


 Permitting the calculation of post-death minimum distributions
to take into account an employee’s remaining life expectancy at the
time of death, thus allowing distributions in all cases to be spread
over a number of years after death.
 

These simplifications would also have the effect of reducing the
required minimum distributions for the vast majority of employees.

The uniform distribution period

Under these proposed regulations and the 1987 proposed regulations,
for distributions from an individual account, the required minimum
distribution is determined by dividing the account balance by the
distribution period. For lifetime required minimum distributions,
these proposed regulations provide a uniform distribution period for
all employees of the same age. The uniform distribution period table
is the required minimum distribution incidental benefit (MDIB)
divisor table originally prescribed in §1.401(a)(9)-2 of the 1987
proposed regulations and now included in A-4 of §1.401(a)(9)-5 of
the new proposed regulations. An exception applies if the employee's
sole beneficiary is the employee's spouse and the spouse is more
than 10 years younger than the employee. In that case, the employee
is permitted to use the longer distribution period measured by the
joint life and last survivor life expectancy of the employee and
spouse.

These changes provide a simple administrable rule for plans and
individuals. Using the MDIB table, most employees will be able to
determine their required minimum distribution for each year based on
nothing more than their current age and their account balance as of
the end of the prior year (which IRA trustees report annually to IRA
owners). Under the 1987 proposed regulations, some employees already
use the MDIB table to determine required minimum distributions.
Under the new proposed regulations, they would continue to do so.
For the majority of other employees, required minimum distributions
would be reduced as a result of the changes.

For years after the year of the employee's death, the distribution
period is generally the remaining life expectancy of the designated
beneficiary. The beneficiary's remaining life expectancy is
calculated using the age of the beneficiary in the year following
the year of the employee’s death, reduced by one for each subsequent
year. If the employee’s spouse is the employee’s sole beneficiary at
the end of the year following the year of death, the distribution
period during the spouse’s life is the spouse’s single life
expectancy. For years after the year of the spouse's death, the
distribution period is the spouse's life expectancy calculated in
the year of death, reduced by one for each subsequent year. If there
is no designated beneficiary as of the end of the year after the
employee's death, the distribution period is the employee's life
expectancy calculated in the year of death, reduced by one for each
subsequent year.

The MDIB table is based on the joint life expectancies of an
individual and a survivor 10 years younger at each age beginning at
age 70. Allowing the use of this table reflects the fact that an
employee's beneficiary is subject to change until the death of the
employee and ultimately may be a beneficiary more than 10 years
younger than the employee. The proposed regulations would allow
lifetime distributions at a rate consistent with this possibility.
Consistent with the requirements of section 401(a)(9)(A)(ii), the
distribution period after death is measured by the life expectancy
of the employee’s designated beneficiary in the year following
death, or the employee’s remaining life expectancy if there is no
designated beneficiary. This ensures that the employee’s entire
benefit is distributed over a period described in section 401(a)(9)
(A)(ii), i.e., the life expectancy of the employee or the joint life
expectancy of the employee and a designated beneficiary.

The approach in these proposed regulations allowing the use of a
uniform lifetime distribution period addresses concerns raised in
comments on the 1987 proposed regulations that the rules are too
complex. It eliminates the use of two tables and the interaction of
the multiple beneficiary and change in beneficiary rules. Finally,
it generally eliminates the need to fix the amount of the
distribution during the employee’s lifetime based on the beneficiary
designated on the required beginning date and eliminates the need to
elect recalculation or no recalculation of life expectancies at the
required beginning date.

Suggestions have been received that the life expectancy table used
to calculate required minimum distributions should be revised to
reflect recent increases in longevity. These proposed regulations
instead provide authority for the Commissioner to issue guidance of
general applicability revising the life expectancy tables and the
uniform distribution table in the future if it becomes appropriate.
While life expectancy has increased in the 14 years since the
issuance of the section 72 life expectancy tables, those tables may
already overstate the average life expectancy of the class of
individuals who are subject to these required minimum distribution
rules (qualified plan participants, IRA owners, et al.). That is
because those existing section 72 tables were derived from the
particular mortality experience of the select population of
individuals who purchase individual annuities, as opposed to the
population who are subject to the required minimum distribution
rules. In any event, as noted earlier, the new proposed uniform
distribution period -- equal to the joint life expectancy of an
individual and a survivor 10 years younger at each age -- would
lengthen the lifetime distribution period for most employees and
beneficiaries. In fact, the new proposed regulations would lengthen
that period more for many individuals than would an update to
reflect recent increases in longevity. The IRS and Treasury believe
that this lengthening of the distribution period for most employees
provides further justification for retaining the existing life
expectancy tables at this time.

Some commentators suggested that the calculation of required minimum
distributions include credit for any distribution in a prior year
that exceeded that year’s required minimum distribution. However,
such a "credit" carryforward would require significant additional
data retention and would add substantial complexity to the
calculation of required minimum distributions. By using the prior
year’s ending account balance for calculating required minimum
distributions, distribution of amounts in excess of the required
minimum distribution has the effect of reducing future required
minimum distributions over the remaining distribution period to some
extent. Accordingly, these proposed regulations do not provide for a
credit carryforward.

Determination of the designated beneficiary

These proposed regulations provide that, generally, the designated
beneficiary is determined as of the end of the year following the
year of the employee’s death rather than as of the employee’s
required beginning date or date of death, as under the 1987 proposed
regulations. Thus, any beneficiary eliminated by distribution of the
benefit or through disclaimer (or otherwise) during the period
between the employee’s death and the end of the year following the
year of death is disregarded in determining the employee’s
designated beneficiary for purposes of calculating required minimum
distributions. If, as of the end of the year following the year of
the employee's death, the employee has more than one designated
beneficiary and the account or benefit has not been divided into
separate accounts or shares for each beneficiary, the beneficiary
with the shortest life expectancy is the designated beneficiary,
consistent with the approach in the 1987 proposed regulations.

This approach for determining the designated beneficiary following
the death of an employee after the employee’s required beginning
date is simpler in several respects than the approach in the 1987
proposed regulations and responds to concerns raised with respect to
the effects of beneficiary designation at the required beginning
date. Under this approach, the determination of the designated
beneficiary and the calculation of the beneficiary’s life expectancy
generally are contemporaneous with commencement of required
distributions to the beneficiary. Any prior beneficiary designation
is irrelevant for distributions from individual accounts, unless the
employee takes advantage of a lifetime distribution period measured
by the joint life expectancy of the employee and a spouse more than
10 years younger than the employee. Further, for an employee with a
designated beneficiary, this approach provides the same rules for
distributions after the employee’s death, regardless of whether
death occurs before or after an employee’s required beginning date.
Finally, in the case of an employee who elects or defaults into
recalculation of life expectancy and who dies without a designated
beneficiary, the requirement that the employee’s entire remaining
account balance be distributed in the year after an employee’s death
has been eliminated and replaced with a distribution period equal to
the employee’s remaining life expectancy recalculated immediately
before death.

Default rule for post-death distributions

As requested by some commentators, these proposed regulations would
change the default rule in the case of death before the employee’s
required beginning date for a nonspouse designated beneficiary from
the 5-year rule in section 401(a)(9)(B)(ii) to the life expectancy
rule in section 401(a)(9)(B)(iii). Thus, absent a plan provision or
election of the 5-year rule, the life expectancy rule would apply in
all cases in which the employee has a designated beneficiary. As in
the case of death on or after the employee’s required beginning
date, the designated beneficiary whose life expectancy is used to
determine the distribution period would be determined as of the end
of the year following the year of the employee’s death, rather than
as of the employee’s date of death (as would have been required
under the 1987 proposed regulations). The 5-year rule would apply
automatically only if the employee did not have a designated
beneficiary as of the end of the year following the year of the
employee's death. Finally, in the case of death before the
employee’s required beginning date, these proposed regulations allow
a waiver, unless the Commissioner determines otherwise, of any
excise tax resulting from the life expectancy rule during the first
five years after the year of the employee’s death if the employee’s
entire benefit is distributed by the end of the fifth year following
the year of the employee’s death.

Annuity payments

These proposed regulations make several changes to the rules for
determining whether annuity payments satisfy section 401(a)(9). The
changes are designed to make these rules more administrable without
adverse effects on the basic structure and application of the rules.
The IRS and Treasury are continuing to study and evaluate whether
additional changes would be appropriate for determining whether
annuity payments satisfy section 401(a)(9). Some comments were
received on the annuity rules in 1987, but updated comments that
include a discussion of current industry practices, products, and
concerns would be helpful.

These proposed regulations provide that the designated beneficiary
for determining the distribution period for annuity payments
generally is the beneficiary as of the annuity starting date, even
if that date is after the required beginning date. Thus, if annuity
payments commence after the required beginning date, the
determination of the designated beneficiary is contemporaneous with
the annuity starting date and any intervening changes in the
beneficiary designation since the required beginning date are
ignored. Second, as requested in comments, these regulations extend
to all annuity payment streams the rule in the 1987 proposed
regulations that allows a life annuity with a period certain not
exceeding 20 years to commence on the required beginning date with
no makeup for the first distribution calendar year. For this
purpose, the regulations clarify that only accruals as of the end of
the prior calendar year must be taken into account in calculating
the amount of an annuity commencing on the required beginning date.
Subsequent accruals are treated as additional accruals that must be
taken into account in the next calendar year. Also as requested in
comments, the regulations provide that, although additional accruals
need to be taken into account in the first payment in the calendar
year following the year of the accrual, actual payment in the form
of a make-up payment need only be completed by the end of that
calendar year. The permitted increase in annuity payments to an
employee upon the death of the survivor annuitant has been expanded
to cover the elimination of the survivor portion of a joint and
survivor annuity due to a qualified domestic relations order.
Further, in response to comments, in the case of an annuity contract
purchased from an insurance company, an exception to the
nonincreasing-payment requirement in these proposed regulations has
been added to accommodate a cash refund upon the employee’s death of
the amount of the premiums paid for the contract.

One of the rules in the 1987 proposed regulations that the IRS and
Treasury are continuing to study and evaluate is the rule providing
that if the distributions from a defined benefit plan are not in the
form of an annuity, the employee’s benefit will be treated as an
individual account for purposes of determining required minimum
distributions. The IRS and Treasury are continuing to consider
whether retention of this rule is appropriate for defined benefit
plans. Similarly, the IRS and Treasury are continuing to consider
whether the rule permitting the benefit under a defined benefit plan
to be divided into segregated shares for purposes of section 401(a)
(9) is useful and appropriate for defined benefit plans.

Trust as beneficiary

These proposed regulations retain the provision in the proposed
regulations, as amended in 1997, allowing an underlying beneficiary
of a trust to be an employee’s designated beneficiary for purposes
of determining required minimum distributions when the trust is
named as the beneficiary of a retirement plan or IRA, provided that
certain requirements are met. One of these requirements is that
documentation of the underlying beneficiaries of the trust be
provided timely to the plan administrator. In the case of individual
accounts, unless the lifetime distribution period for an employee is
measured by the joint life expectancy of the employee and the
employee’s spouse, the deadline under these proposed regulations for
providing the beneficiary documentation would be the end of the year
following year of the employee’s death. This is consistent with the
deadline for determining the employee’s designated beneficiary.
Because the designated beneficiary during an employee’s lifetime is
not relevant for determining lifetime required minimum distributions
in most cases under these proposed regulations, the burden of
lifetime documentation requirements contained in the previous
proposed regulations is significantly reduced.

A significant number of commentators on the 1997 amendment to the
proposed regulations requested clarification that a testamentary
trust named as an employee’s beneficiary is a trust that qualifies
for the look-through rule to the underlying beneficiaries, as
permitted in the 1997 proposed regulations. These proposed
regulations provide examples in which a testamentary trust is named
as an employee’s beneficiary and the look-through trust rules apply.
As previously illustrated in the facts of Rev. Rul. 2000-2, 2000-3
I.R.B. 305, the examples also clarify that remaindermen of a "QTIP"
trust must be taken into account as beneficiaries in determining the
distribution period for required minimum distributions if amounts
are accumulated for their benefit during the life of the income
beneficiary under the trust.

Rules for qualified domestic relations orders

These proposed regulations retain the basic rules in the 1987
proposed regulation for a qualified domestic relations order (QDRO).
Thus, for example, the proposed regulations continue to provide that
a former spouse to whom all or a portion of the employee’s benefit
is payable pursuant to a QDRO will be treated as a spouse (including
a surviving spouse) of the employee for purposes of section 401(a)
(9), including the minimum distribution incidental benefit
requirement, regardless of whether the QDRO specifically provides
that the former spouse is treated as the spouse for purposes of
sections 401(a)(11) and 417. This rule applies regardless of the
number of former spouses an employee has who are alternate payees
with respect to the employee’s retirement benefits. Further, for
example, if a QDRO divides the individual account of an employee in
a defined contribution plan into a separate account for the employee
and a separate account for the alternate payee, the required minimum
distribution to the alternate payee during the lifetimee of the
employee must nevertheless be determined using the same rules that
apply to distribution to the employee. Thus, required minimum
distributions to the alternate payee must commence by the employee’s
required beginning date. However, the required minimum distribution
for the alternate payee will be separately determined. The required
minimum distributions for the alternate payee during the lifetime of
the employee may be determined either using the uniform distribution
period discussed above based on the age of the employee in the
distribution calendar year, or, if the alternate payee is the
employee’s former spouse and is more than 10 years younger than the
employee, using the joint life expectancy of the employee and the
alternate payee.

Election of surviving spouse to treat an inherited IRA as spouse’s
own IRA

These proposed regulations clarify the rule in the 1987 proposed
regulations that allows the surviving spouse of a decedent IRA owner
to elect to treat an IRA inherited by the surviving spouse from that
owner as the spouse’s own IRA. The 1987 proposed regulations provide
that this election is deemed to have been made if the surviving
spouse contributes to the IRA or does not take the required minimum
distribution for a year under section 401(a)(9)(B) as a beneficiary
of the IRA. These new proposed regulations clarify that this deemed
election is permitted to be made only after the distribution of the
required minimum amount for the account, if any, for the year of the
individual's death. Further these new proposed regulations clarify
that this deemed election is permitted only if the spouse is the
sole beneficiary of the account and has an unlimited right to
withdrawal from the account. This requirement is not satisfied if a
trust is named as beneficiary of the IRA, even if the spouse is the
sole beneficiary of the trust. These clarifications make the
election consistent with the underlying premise that the surviving
spouse could have received a distribution of the entire decedent IRA
owner’s account and rolled it over to an IRA established in the
surviving spouse's own name as IRA owner.

These new proposed regulations also clarify that, except for the
required minimum distribution for the year of the individual's
death, the spouse is permitted to roll over the post-death required
minimum distribution under section 401(a)(9)(B) for a year if the
spouse is establishing the IRA rollover account in the name of the
spouse as IRA owner. However, if the surviving spouse is age
70½ or older, the minimum lifetime distribution required
under section 401(a)(9)(A) must be made for the year and, because it
is a required minimum distribution, that amount may not be rolled
over. These proposed regulations provide that this election by a
surviving spouse eligible to treat an IRA as the spouse’s own may
also be accomplished by redesignating the IRA with the name of the
surviving spouse as owner rather than beneficiary.

IRA reporting of required minimum distributions

Because these regulations substantially simplify the calculation of
required minimum distributions from IRAs, IRA trustees, custodians,
and issuers determining the account balance as of the end of the
year can also calculate the following year's required minimum
distribution for each IRA. To improve compliance and further reduce
the burden imposed on IRA owners and beneficiaries, under the
authority provided in section 408(i), these proposed regulations
would require the trustee, custodian, or issuer of each IRA to
report the amount of the required minimum distribution from the IRA
to the IRA owner or beneficiary and to the IRS at the time and in
the manner provided under IRS forms and instructions. This reporting
would be required regardless of whether the IRA owner is planning to
take the required minimum distribution from that IRA or from another
IRA, and would indicate that the IRA owner is permitted to take the
required minimum distribution from any other IRA of the owner.
During year 2001, the IRS will be receiving public comments and
consulting with interested parties to assist the IRS in evaluating
what form best accommodates this reporting requirement, what timing
is appropriate (e.g., the beginning of the calendar year for which
the required amount is being calculated), and what effective date
would be most appropriate for the reporting requirement. In this
context, after thorough consideration of comments and consultation
with interested parties, the IRS intends to develop procedures and a
schedule for reporting that provides adequate lead time, and
minimizes the reporting burden, for IRA trustees, issuers, and
custodians in complying with this new reporting requirement while
providing the most useful information to the IRA owners and
beneficiaries. The IRS and Treasury are also considering whether
similar reporting would be appropriate for section 403(b) contracts.

Permitted Delays Relative to QDROs and State Insurer Delinquency
Proceedings The regulations permit the required minimum distribution
for a year to be delayed to a later year in certain circumstances.
Specifically, commentators requested a delay during a period of up
to 18 months during which an amount is segregated in connection with
the review of a domestic relations order pursuant to section 414(p)
(7). Commentators also requested that a delay be permitted while
annuity payments under an annuity contract issued by a life
insurance company in state insurer delinquency proceedings have been
reduced or suspended by reason of state proceedings. These proposed
regulations allow delay in these circumstances.

Correction of failures under section 401(a)(9)

The proposed regulations do not set forth the special rule relieving
a plan from disqualification for isolated instances of failure to
satisfy section 401(a)(9) because all failures for qualified plans
and section 403(b) accounts under section 401(a)(9) are now
permitted to be corrected through the Employee Plans Compliance
Resolution System (EPCRS). See Rev. Proc. 2000-16 (2000-6 I.R.B.
518).

Amendment of Qualified Plans

These regulations are proposed to be effective for distributions for
calendar years beginning on or after January 1, 2002. For
distributions for calendar years beginning before the effective date
of final regulations, plan sponsors can continue to rely on the 1987
proposed regulations, to the extent those proposed regulations are
not inconsistent with the changes to section 401(a)(9) made by the
Small Business Job Protection Act of 1996 (SBJPA) and guidance
related to those changes. Alternatively, for distributions for the
2001 and subsequent calendar years beginning before the effective
date of final regulations, plan sponsors are permitted, but not
required, to follow these proposed regulations in the operation of
their plans by adopting the model amendment set forth below.

The Treasury Department and the IRS are making the model amendment
set forth below available to plan sponsors to permit them to apply
these proposed regulations in the operation of their plans without
violating the requirement that a plan be operated in accordance with
its terms. Plan sponsors who adopt the model amendment will have
reliance that, during the term of the amendment, operation of their
plans in a manner that satisfies the minimum distribution
requirements in these proposed regulations will not cause their
plans to fail to be qualified. In addition, distributees will have
reliance that distributions that are made during the term of the
amendment that satisfy the minimum distribution requirements in
these proposed regulations. The model amendment may be adopted by
plan sponsors, practitioners who sponsor volume submitter specimen
plans and sponsors of master and prototype (M&P) plans.

These proposed regulations permit plans to make distributions under
either default provisions or under permissible optional provisions.
A plan that has been amended by adoption of the model amendment will
be treated as operating in conformance with a requirement of the
proposed regulations that permits the use of either default or
optional provisions if the plan is operated consistently in
accordance with either the default rule or a specific permitted
alternative, notwithstanding the plan’s terms.

The Service will not issue determination, opinion or advisory
letters on the basis of the changes in these proposed regulations
until the publication of final regulations. Until such time, the IRS
will continue to issue such letters on the basis of the 1987
proposed regulations and SBJPA. Although the IRS will not issue
determination, opinion or advisory letters with respect to the model
amendment, the adoption of the model amendment will not affect a
determination letter issued for a plan whose terms otherwise satisfy
the 1987 proposed regulations and SBJPA. Plan sponsors should not
adopt other amendments to attempt to conform their plans to the
changes in these proposed regulations before the publication of
final regulations. The IRS intends to publish procedures at a later
date that will allow qualified plans to be amended to reflect the
regulations under section 401(a)(9) when they are finalized.

Qualified plans are required to be amended for changes in the plan
qualification requirements made by GUST by the end of the GUST
remedial amendment period under section 401(b), which is generally
the end of the first plan year beginning on or after January 1,
2001, or, if applicable, a later date determined under the
provisions of section 19 of Rev. Proc. 2000-20 (2000-6 I.R.B. 553).
Many plans have been operated in a manner that reflects the changes
to section 401(a)(9) made by SBJPA and will have to be amended for
these changes by the end of the GUST remedial amendment period. The
IRS intends that its procedures for amending qualified plans for the
final regulations under section 401(a)(9) will generally avoid the
need for plan sponsors, volume submitter practitioners and M&P plan
sponsors to request another determination, opinion or advisory
letter subsequent to their application for a GUST letter. In
addition, to the extent such a subsequent letter is needed or
desired, the IRS intends that its procedures will provide that the
application for the letter will not have to be submitted prior to
the next time the plan is otherwise amended or required to be
amended.

The model amendment described above is set forth below:

"With respect to distributions under the Plan made for calendar
years beginning on or after January 1, 2001 (ALTERNATIVELY, SPECIFY
A LATER CALENDAR YEAR FOR WHICH THE AMENDMENT IS TO BE INITIALLY
EFFECTIVE), the Plan will apply the minimum distribution
requirements of section 401(a)(9) of the Internal Revenue Code in
accordance with the regulations under section 401(a)(9) that were
proposed in January 2001, notwithstanding any provision of the Plan
to the contrary. This amendment shall continue in effect until the
end of the last calendar year beginning before the effective date of
final regulations under section 401(a)(9) or such other date as may
be specified in guidance published by the Internal Revenue Service."

Amendment of IRAs and Effective Date

These regulations are proposed to be effective for distributions for
calendar years beginning on or after January 1, 2002. For
distributions for the 2001 calendar year, IRA owners are permitted,
but not required, to follow these proposed regulations in operation,
notwithstanding the terms of the IRA documents. IRA owners may
therefore rely on these proposed regulations for distributions for
the 2001 calendar year. However, IRA sponsors should not amend their
IRA documents to conform their IRAs to the changes in these proposed
regulations before the publication of final regulations. The IRS
will not issue model IRAs on the basis of the changes in these
proposed regulations until the publication of final regulations.
Until such time, IRA owners can continue to use the current model
IRAs which are based on the 1987 proposed regulations under section
401(a)(9). The IRS will publish procedures at a later date that will
allow IRAs to be amended to reflect final regulations under section
401(a)(9).

Proposed Effective Date

The regulations are proposed to be applicable for determining
required minimum distributions for calendar years beginning on or
after January 1, 2002. For determining required minimum
distributions for calendar year 2001, taxpayers may rely on these
proposed regulations or on the 1987 proposed regulations. If, and to
the extent, future guidance is more restrictive than the guidance in
these proposed regulations, the future guidance will be issued
without retroactive effect.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It is
hereby certified that these regulations will not have a significant
economic impact on a substantial number of small entities. This
certification is based on the fact that, when determining the
minimum required distribution in cases where a plan participant
wishes to designate a trust as beneficiary of the participant’s
benefit, the reporting burden is primarily on the plan participant,
or trustee of the trust named as beneficiary, to supply information
rather than on the entity maintaining the retirement plan and the
fact that the number of participants per plan to whom the burden is
insignificant. The recordkeeping burden with respect to section
403(b) contracts under which the pre-1987 account balance must be
maintained applies only to issuers and custodians of those
contracts, which generally are not small entities. Accordingly, a
Regulatory Flexibility Analysis is not required. Pursuant to section
7805(f) of the Code, these proposed regulations will be submitted to
the Chief Counsel for Advocacy of the Small Business Administration
for comment on their impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any electronic or written comments
(preferably a signed original and eight (8) copies) that are
submitted timely to the IRS. In addition to the other requests for
comments set forth in this document, the IRS and Treasury also
request comments on the clarity of the proposed rule and how it may
be made easier to understand. All comments will be available for
public inspection and copying.

A public hearing has been scheduled for June 1, 2001, at 10 a.m. in
the IRS Auditorium (7th Floor), Internal Revenue Building, 1111
Constitution Avenue NW., Washington, DC. Due to building security
procedures, visitors must enter at the 10 th street entrance,
located between Constitution and Pennsylvania Avenues, NW. In
addition, all visitors must present photo identification to enter
the building. Because of access restrictions, visitors will not be
admitted beyond the immediate entrance area more than 15 minutes
before the hearing starts. For information about having your name
placed on the building access list to attend the hearing, see the
"FOR FURTHER INFORMATION CONTACT" section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons who wish to present oral comments at the hearing must submit
written comments and an outline of the topics to be discussed and
the time to be devoted to each topic (signed original and eight (8)
copies) by May 11, 2001. A period of 10 minutes will be allotted to
each person for making comments. An agenda showing the scheduling of
the speakers will be prepared after the deadline for receiving
outlines has passed. Copies of the agenda will be available free of
charge at the hearing.

Drafting Information

The principal authors of these regulations are Marjorie Hoffman and
Cathy A. Vohs of the Office of the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government Entities). However, other
personnel from the IRS and Treasury participated in their
development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

Excise taxes, Pensions, Reporting and recordkeeping requirements.

Adoption of Amendments of the Regulations Accordingly, 26 CFR part 1
is amended as follows:

PART 1 - INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

§1.401(a)(9)-1 is also issued under 26 U.S.C. 401(a)(9).

§1.401(a)(9)-2 is also issued under 26 U.S.C. 401(a)(9).

§1.401(a)(9)-3 is also issued under 26 U.S.C. 401(a)(9).

§1.401(a)(9)-4 is also issued under 26 U.S.C. 401(a)(9).

§1.401(a)(9)-5 is also issued under 26 U.S.C. 401(a)(9).

§1.401(a)(9)-6 is also issued under 26 U.S.C. 401(a)(9).

§1.401(a)(9)-7 is also issued under 26 U.S.C. 401(a)(9).

§1.401(a)(9)-8 is also issued under 26 U.S.C. 401(a)(9). * * *

§1.403(b)-2 is also issued under 26 U.S.C. 403(b)(10). * * *

§1.408-8 is also issued under 26 U.S.C. 408(a)(6) and (b)(3). * * *

Par. 2. Sections 1.401(a)(9)-0 through 1.401(a)(9)-8 are added to
read as follows:

§1.401(a)(9)-0 Required minimum distributions; table of contents.

This table of contents lists the regulations relating to required
minimum distributions under section 401(a)(9) of the Internal
Revenue Code as follows:

§1.401(a)(9)-0 Required minimum distributions; table of contents.

§1.401(a)(9)-1 Required minimum distribution requirement in general.

§1.401(a)(9)-2 Distributions commencing before an employee’s death.

§1.401(a)(9)-3 Death before required beginning date.

§1.401(a)(9)-4 Determination of the designated beneficiary.

§1.401(a)(9)-5 Required minimum distributions from defined
contribution plans.

§1.401(a)(9)-6 Required minimum distributions from defined benefit
plans.

§1.401(a)(9)-7 Rollovers and transfers.

§1.401(a)(9)-8 Special rules.

§1.401(a)(9)-1 Required minimum distribution requirement in general.

Q-1. What plans are subject to the required minimum distribution
requirement under section 401(a)(9) and §§1.401(a)(9)-1 through
1.401(a)(9)-8?

A-1. All stock bonus, pension, and profit-sharing plans qualified
under section 401(a) and annuity contracts described in section
403(a) are subject to the required minimum distribution rules in
section 401(a)(9) and §§1.401(a)(9)-1 through 1.401(a)(9)-8. See
§1.403(b)-2 for the distribution rules applicable to annuity
contracts or custodial accounts described in section 403(b), see
§1.408-8 for the distribution rules applicable to individual
retirement plans, see §1.408A-6 described for the distribution rules
applicable to Roth IRAs under section 408A, and see section 457(d)
(2)(A) for distribution rules applicable to certain deferred
compensation plans for employees of tax exempt organizations or
state and local government employees.

Q-2. Which employee account balances and benefits held under
qualified trusts and plans are subject to the distribution rules of
section 401(a)(9) and §§1.401(a)(9)-1 through 1.401(a)(9)-8?

A-2. The distribution rules of section 401(a)(9) apply to all
account balances and benefits in existence on or after January 1,
1985. Sections 1.401(a)(9)-1 through 1.401(a)(9)-8 apply for
purposes of determining required minimum distributions for calendar
years beginning on or after January 1, 2002.

Q-3. What specific provisions must a plan contain in order to
satisfy section 401(a)(9)?

A-3.

(a) Required provisions. In order to satisfy section 401(a)(9), the
plan must include several written provisions reflecting section
401(a)(9). First, the plan must generally set forth the statutory
rules of section 401(a)(9), including the incidental death benefit
requirement in section 401(a)(9)(G). Second, the plan must provide
that distributions will be made in accordance with §§1.401(a)(9)-1
through 1.401(a)(9)-8. The plan document must also provide that the
provisions reflecting section 401(a)(9) override any distribution
options in the plan inconsistent with section 401(a)(9). The plan
also must include any other provisions reflecting section 401(a)(9)
as are prescribed by the Commissioner in revenue rulings, notices,
and other guidance published in the Internal Revenue Bulletin. See
§601.601(d)(2)(ii)(b) of this chapter.

(b) Optional provisions. The plan may also include written
provisions regarding any optional provisions governing plan
distributions that do not conflict with section 401(a)(9) and the
regulations thereunder.

(c) Absence of optional provisions. Plan distributions commencing
after an employee’s death will be required to be made under the
default provision set forth in §1.401(a)(9)-3 for distributions
unless the plan document contains optional provisions that override
such default provisions. Thus, if distributions have not commenced
to the employee at the time of the employee's death, distributions
after the death of an employee are to be made automatically in
accordance with the default provisions in A-4( a) of §1.401(a)(9)-3
unless the plan either specifies in accordance with A-4(b) of
§1.401(a)(9)-3 the method under which distributions will be made or
provides for elections by the employee (or beneficiary) in
accordance with A-4(c) of §1.401(a)(9)-3 and such elections are made
by the employee or beneficiary.

§1.401(a)(9)-2 Distributions commencing before an employee’s death.

Q-1. In the case of distributions commencing before an employee's
death, how must the employee's entire interest be distributed in
order to satisfy section 401(a)(9)(A)?

A-1.

(a) In order to satisfy section 401(a)(9)(A), the entire interest of
each employee must be distributed to such employee not later than
the required beginning date, or must be distributed, beginning not
later than the required beginning date, over the life of the
employee or joint lives of the employee and a designated beneficiary
or over a period not extending beyond the life expectancy of the
employee or the joint life and last survivor expectancy of the
employee and the designated beneficiary.

(b) Section 401(a)(9)(G) provides that lifetime distributions must
satisfy the incidental death benefit requirements.

(c) The amount required to be distributed for each calendar year in
order to satisfy section 401(a)(9)(A) and (G) generally depends on
whether a distribution is in the form of distributions under a
defined contribution plan or annuity payments under a defined
benefit plan. For the method of determining the required minimum
distribution in accordance with section 401(a)(9)(A) and (G) from an
individual account under a defined contribution plan, see §1.401(a)
(9)-5. For the method of determining the required minimum
distribution in accordance with section 401(a)(9)(A) and (G) in the
case of annuity payments from a defined benefit plan or an annuity
contract, see §1.401(a)(9)-6.

Q-2. For purposes of section 401(a)(9)(C), what does the term
required beginning date mean?

A-2.

(a) Except as provided in paragraph (b) of this A-2 with respect to
a 5- percent owner, as defined in paragraph (c), the term required
beginning date means April 1 of the calendar year following the
later of the calendar year in which the employee attains age
70½, or the calendar year in which the employee retires from
employment with the employer maintaining the plan.

(b) In the case of an employee who is a 5-percent owner, the term
required beginning date means April 1 of the calendar year following
the calendar year in which the employee attains age 70½.

(c) For purposes of section 401(a)(9), a 5-percent owner is an
employee who is a 5-percent owner (as defined in section 416) with
respect to the plan year ending in the calendar year in which the
employee attains age 70½.

(d) Paragraph (b) of this A-2 does not apply in the case of a
governmental plan (within the meaning of section 414(d)) or a church
plan. For purposes of this paragraph, the term church plan means a
plan maintained by a church for church employees, and the term
church means any church (as defined in section 3121(w)(3)(A)) or
qualified church-controlled organization (as defined in section
3121(w)(3)(B)).

(e) A plan is permitted to provide that the required beginning date
for purposes of section 401(a)(9) for all employees is April 1 of
the calendar year following the calendar year in which the employee
attained age 70½ regardless of whether the employee is a 5-
percent owner.

Q-3. When does an employee attain age 70½?

A-3. An employee attains age 70½ as of the date six calendar
months after the 70th anniversary of the employee's birth. For
example, if an employee's date of birth was June 30, 1932, the 70th
anniversary of such employee's birth is June 30, 2002. Such employee
attains age 70½ on December 30, 2002. Consequently, if the
employee is a 5-percent owner or retired, such employee's required
beginning date is April 1, 2003. However, if the employee's date of
birth was July 1, 1932, the 70th anniversary of such employee's
birth would be July 1, 2002. Such employee would then attain age
70½ on January 1, 2003 and such employee's required beginning
date would be April 1, 2004.

Q-4. Must distributions made before the employee's required
beginning date satisfy section 401(a)(9)?

A-4. Lifetime distributions made before the employee's required
beginning date for calendar years before the employee's first
distribution calendar year, as defined in A-1(b) of §1.401(a)(9)-5,
need not be made in accordance with section 401(a)(9). However, if
distributions commence before the employee's required beginning date
under a particular distribution option, such as in the form of an
annuity, the distribution option fails to satisfy section 401(a)(9)
at the time distributions commence if, under terms of the particular
distribution option, distributions to be made for the employee's
first distribution calendar year or any subsequent distribution
calendar year will fail to satisfy section 401(a)(9).

Q-5. If distributions have begun to an employee before the
employee's death (in accordance with section 401(a)(9)(A)(ii)), how
must distributions be made after an employee's death?

A-5. Section 401(a)(9)(B)(i) provides that if the distribution of
the employee's interest has begun in accordance with section 401(a)
(9)(A)(ii) and the employee dies before his entire interest has been
distributed to him, the remaining portion of such interest must be
distributed at least as rapidly as under the distribution method
being used under section 401(a)(9)(A)(ii) as of the date of his
death. The amount required to be distributed for each distribution
calendar year following the calendar year of death generally depends
on whether a distribution is in the form of distributions from an
individual account under a defined contribution plan or annuity
payments under a defined benefit plan. For the method of determining
the required minimum distribution in accordance with section 401(a)
(9)(B)(i) from an individual account, see A-5(a) of §1.401(a)(9)-5
for the calculation of the distribution period that applies when an
employee dies after the employee’s required beginning date. In the
case of annuity payments from a defined benefit plan or an annuity
contract, see §1.401(a)(9)-6.

Q-6. For purposes of section 401(a)(9)(B), when are distributions
considered to have begun to the employee in accordance with section
401(a)(9)(A)(ii)?

A-6.

(a) General rule. Except as otherwise provided in A-10 of §1.401(a)
(9)-6, distributions are not treated as having begun to the employee
in accordance with section 401(a)(9)(A)(ii) until the employee's
required beginning date, without regard to whether payments have
been made before that date. For example, if employee A upon
retirement in 2002, the calendar year A attains age 65 ½,
begins receiving installment distributions from a profit-sharing
plan over a period not exceeding the joint life and last survivor
expectancy of A and A's beneficiary, benefits are not treated as
having begun in accordance with section 401(a)(9)(A)(ii) until April
1, 2008 (the April 1 following the calendar year in which A attains
age 70½). Consequently, if such employee dies before April 1,
2008 (A's required beginning date), distributions after A's death
must be made in accordance with section 401(a)(9)(B)(ii) or (iii)
and (iv) and §1.401(a)(9)-3, and not section 401(a)(9)(B)(i). This
is the case without regard to whether the plan has distributed the
minimum distribution for the first distribution calendar year (as
defined in A-1(b) of §1.401(a)(9)-5) before A's death.

(b) If a plan provides, in accordance with A-2(e) of this section,
that the required beginning date for purposes of section 401(a)(9)
for all employees is April 1 of the calendar year following the
calendar year in which the employee attains age 70½, an
employee who dies after the required beginning date determined under
the plan terms is treated as dying after the employee’s required
beginning date for purposes of A-5(a) of this section even though
the employee dies before the April 1 following the calendar year in
which the employee retires.

§1.401(a)(9)-3 Death before required beginning date.

Q-1. If an employee dies before the employee’s required beginning
date, how must the employee's entire interest be distributed in
order to satisfy section 401(a)(9)?

A-1.

(a) Except as otherwise provided in A-10 of §1.401(a)(9)-6, if an
employee dies before the employee’s required beginning date (and,
thus, generally before distributions are treated as having begun in
accordance with section 401(a)(9)(A)(ii)), distribution of the
employee’s entire interest must be made in accordance with one of
the methods described in section 401(a)(9)(B)(ii) or (iii). One
method (the five-year rule in section 401(a)(9)(B)(ii)) requires
that the entire interest of the employee be distributed within five
years of the employee's death regardless of who or what entity
receives the distribution. Another method (the life expectancy rule
in section 401(a)(9)(B)(iii)) requires that any portion of an
employee's interest payable to (or for the benefit of) a designated
beneficiary be distributed, commencing within one year of the
employee's death, over the life of such beneficiary (or over a
period not extending beyond the life expectancy of such
beneficiary). Section 401(a)(9)(B)(iv) provides special rules where
the designated beneficiary is the surviving spouse of the employee,
including a special commencement date for distributions under
section 401(a)(9)(B)(iii) to the surviving spouse.

(b) See A-4 of this section for the rules for determining which of
the methods described in paragraph (a) applies. See A-3 of this
section to determine when distributions under the exception to the
five-year rule in section 401(a)(9)(B)(iii) and (iv) must commence.
See A-2 of this section to determine when the five-year period in
section 401(a)(9)(B)(ii) ends. For distributions using the life
expectancy rule in section 401(a)(9)(B)(iii) and (iv), see §1.401(a)
(9)-4 in order to determine the designated beneficiary under section
401(a)(9)(B)(iii) and (iv), see §1.401(a)(9)-5 for the rules for
determining the required minimum distribution under a defined
contribution plan, and see §1.401(a)(9)-6 for required minimum
distributions under defined benefit plans. Q-2. By when must the
employee's entire interest be distributed in order to satisfy the
five-year rule in section 401(a)(9)(B)(ii)?

A-2. In order to satisfy the five-year rule in section 401(a)(9)(B)
(ii), the employee's entire interest must be distributed by the end
of the calendar year which contains the fifth anniversary of the
date of the employee's death. For example, if an employee dies on
January 1, 2002, the entire interest must be distributed by the end
of 2007, in order to satisfy the five-year rule in section 401(a)(9)
(B)(ii).

Q-3. When are distributions required to commence in order to satisfy
the life expectancy rule in section 401(a)(9)(B)(iii) and (iv)?

A-3.

(a) Nonspouse beneficiary. In order to satisfy the life expectancy
rule in section 401(a)(9)(B)(iii), if the designated beneficiary is
not the employee's surviving spouse, distributions must commence on
or before the end of the calendar year immediately following the
calendar year in which the employee died. This rule also applies to
the distribution of the entire remaining benefit if another
individual is a designated beneficiary in addition to the employee’s
surviving spouse. See A-2 and A-3 of §1.401(a)(9)-8, however, if the
employee's benefit is divided into separate accounts (or segregated
shares, in the case of a defined benefit plan).

(b) Spousal beneficiary. In order to satisfy the rule in section
401(a)(9)(B)(iii) and

(iv), if the sole designated beneficiary is the employee's surviving
spouse, distributions must commence on or before the later of- -

(1) The end of the calendar year immediately following the calendar
year in which the employee died; and

(2) The end of the calendar year in which the employee would have
attained age 70½.

Q-4. How is it determined whether the five-year rule in section
401(a)(9)(B)(ii) or the life expectancy rule in section 401(a)(9)(B)
(iii) and (iv) applies to a distribution?

A-4.

(a) No plan provision. If a plan does not adopt an optional
provision described in paragraph (b) or (c) of this A-4 specifying
the method of distribution after the death of an employee,
distribution must be made as follows:

(1) If the employee has a designated beneficiary, as determined
under §1.401(a)(9)-4, distributions are to be made in accordance
with the life expectancy rule in section 401(a)(9)(B)(iii) and (iv).

(2) If the employee has no designated beneficiary, distributions are
to be made in accordance with the five-year rule in section 401(a)
(9)(B)(ii).

(b) Optional plan provisions. The plan may adopt a provision
specifying either that the five-year rule in section 401(a)(9)(B)
(ii) will apply to certain distributions after the death of an
employee even if the employee has a designated beneficiary or that
distribution in every case will be made in accordance with the five-
year rule in section 401(a)(9)(B)(ii). Further, a plan need not have
the same method of distribution for the benefits of all employees.

(c) Elections. A plan may adopt a provision that permits employees
(or beneficiaries) to elect on an individual basis whether the five-
year rule in section 401(a)(9)(B)(ii) or the life expectancy rule in
section 401(a)(9)(B)(iii) and (iv) applies to distributions after
the death of an employee who has a designated beneficiary. Such an
election must be made no later than the earlier of, the end of the
calendar year in which distribution would be required to commence in
order to satisfy the requirements for the life expectancy rule in
section 401(a)(9)(B)(iii) and (iv) (see A-3 of this section for the
determination of such calendar year), or the end of the calendar
year which contains the fifth anniversary of the date of death of
the employee. As of the date determined under the life expectancy
rule, the election must be irrevocable with respect to the
beneficiary (and all subsequent beneficiaries) and must apply to all
subsequent calendar years. If a plan provides for the election, the
plan may also specify the method of distribution that applies if
neither the employee nor the beneficiary makes the election. If
neither the employee nor the beneficiary elects a method and the
plan does not specify which method applies, distribution must be
made in accordance with paragraph (a).

Q-5. If the employee’s surviving spouse is the employee’s designated
beneficiary and such spouse dies after the employee, but before
distributions have begun to the surviving spouse under section
401(a)(9)(B)(iii) and (iv), how is the employee’s interest to be
distributed?

A-5. Pursuant to section 401(a)(9)(B)(iv)(II), if the surviving
spouse dies after the employee, but before distributions to such
spouse have begun under section 401(a)(9)(B)(iii) and (iv), the
five-year rule in section 401(a)(9)(B)(ii) and the life expectancy
rule in section 401(a)(9)(B)(iii) are to be applied as if the
surviving spouse were the employee. In applying this rule, the date
of death of the surviving spouse shall be substituted for the date
of death of the employee. However, in such case, the rules in
section 401(a)(9)(B)(iv) are not available to the surviving spouse
of the deceased employee’s surviving spouse.

Q-6. For purposes of section 401(a)(9)(B)(iv)(II), when are
distributions considered to have begun to the surviving spouse?

A-6. Distributions are considered to have begun to the surviving
spouse of an employee, for purposes of section 401(a)(9)(B)(iv)(II),
on the date, determined in accordance with A-3 of this section, on
which distributions are required to commence to the surviving
spouse, even though payments have actually been made before that
date. See A-11 of §1.401(a)(9)-6 for a special rule for annuities.

§1.401(a)(9)-4 Determination of the designated beneficiary.

Q-1. Who is a designated beneficiary under section 401(a)(9)(E)?

A-1. A designated beneficiary is an individual who is designated as
a beneficiary under the plan. An individual may be designated as a
beneficiary under the plan either by the terms of the plan or, if
the plan so provides, by an affirmative election by the employee (or
the employee’s surviving spouse) specifying the beneficiary. A
beneficiary designated as such under the plan is an individual who
is entitled to a portion of an employee’s benefit, contingent on the
employee’s death or another specified event. For example, if a
distribution is in the form of a joint and survivor annuity over the
life of the employee and another individual, the plan does not
satisfy section 401(a)(9) unless such other individual is a
designated beneficiary under the plan. A designated beneficiary need
not be specified by name in the plan or by the employee to the plan
in order to be a designated beneficiary so long as the individual
who is to be the beneficiary is identifiable under the plan as of
the date the beneficiary is determined under A-4 of this section.
The members of a class of beneficiaries capable of expansion or
contraction will be treated as being identifiable if it is possible,
as of the date the beneficiary is determined, to identify the class
member with the shortest life expectancy. The fact that an
employee’s interest under the plan passes to a certain individual
under applicable state law does not make that individual a
designated beneficiary unless the individual is designated as a
beneficiary under the plan.

Q-2. Must an employee (or the employee’s spouse) make an affirmative
election specifying a beneficiary for a person to be a designated
beneficiary under section 40l(a)(9)(E)?

A-2. No. A designated beneficiary is an individual who is designated
as a beneficiary under the plan whether or not the designation under
the plan was made by the employee. The choice of beneficiary is
subject to the requirements of sections 401(a)(11), 414(p), and 417.

Q-3. May a person other than an individual be considered to be a
designated beneficiary for purposes of section 401(a)(9)?

A-3.

(a) No. Only individuals may be designated beneficiaries for
purposes of section 401(a)(9). A person that is not an individual,
such as the employee’s estate, may not be a designated beneficiary,
and, if a person other than an individual is designated as a
beneficiary of an employee’s benefit, the employee will be treated
as having no designated beneficiary for purposes of section 401(a)
(9). However, see A-5 of this section for special rules which apply
to trusts.

(b) If an employee is treated as having no designated beneficiary,
for distributions under a defined contribution plan, the
distribution period under section 401(a)(9)(A)(ii) after the death
of the employee is limited to the period described in A-5(a)(2) of
§1.401(a)(9)-5 (the remaining life expectancy of the employee
determined in accordance with A-5(c)(3) of §1.401(a)(9)-5). Further,
in such case, except as provided in A-10 of §1.401(a)(9)-6, if the
employee dies before the employee’s required beginning date,
distribution must be made in accordance with the 5-year rule in
section 401(a)(9)(B)(ii).

Q-4. When is the designated beneficiary determined?

A-4.

(a) General rule. Except as provided in paragraph (b) and §1.401(a)
(9)-6, the employee’s designated beneficiary will be determined
based on the beneficiaries designated as of the last day of the
calendar year following the calendar year of the employee's death.
Consequently, except as provided in §1.401(a)(9)-6, any person who
was a beneficiary as of the date of the employee’s death, but is not
a beneficiary as of that later date (e.g., because the person
disclaims entitlement to the benefit in favor of another beneficiary
or because the person receives the entire benefit to which the
person is entitled before that date), is not taken into account in
determining the employee’s designated beneficiary for purposes of
determining the distribution period for required minimum
distributions after the employee’s death.

(b) Surviving spouse. As provided in A-5 of §1.401(a)(9)-3, in the
case in which the employee's spouse is the designated beneficiary as
of the date described in paragraph (a) of this A-5, and the
surviving spouse dies after the employee and before the date on
which distributions have begun to the spouse under section 401(a)(9)
(B)(iii) and (iv), the rule in section 40l(a)(9)(B)(iv)(II) will
apply. Thus, the relevant designated beneficiary for determining the
distribution period is the designated beneficiary of the surviving
spouse. Such designated beneficiary will be determined as of the
last day of the calendar year following the calendar year of
surviving spouse's death. If, as of such last day, there is no
designated beneficiary under the plan with respect to that surviving
spouse, distribution must be made in accordance with the 5-year rule
in section 401(a)(9)(B)(ii) and A-2 of §1.401(a)(9)-3.

(c) Multiple beneficiaries. Notwithstanding anything in this A-4 to
the contrary, the rules in A-7 of §1.401(a)(9)-5 apply if more than
one beneficiary is designated with respect to an employee as of the
date on which the designated beneficiary is to be determined in
accordance with paragraphs (a) and (b) of this A-4.

Q-5. If a trust is named as a beneficiary of an employee, will the
beneficiaries of the trust with respect to the trust’s interest in
the employee’s benefit be treated as having been designated as
beneficiaries of the employee under the plan for purposes of
determining the distribution period under section 401(a)(9)?

A-5.

(a) Only an individual may be a designated beneficiary for purposes
of determining the distribution period under section 401(a)(9).
Consequently, a trust is not a designated beneficiary even though
the trust is named as a beneficiary. However, if the requirements of
paragraph (b) of this A-5 are met, the beneficiaries of the trust
will be treated as having been designated as beneficiaries of the
employee under the plan for purposes of determining the distribution
period under section 401(a)(9).

(b) The requirements of this paragraph (b) are met if, during any
period during which required minimum distributions are being
determined by treating the beneficiaries of the trust as designated
beneficiaries of the employee, the following requirements are met:

(1) The trust is a valid trust under state law, or would be but for
the fact that there is no corpus.

(2) The trust is irrevocable or will, by its terms, become
irrevocable upon the death of the employee.

(3) The beneficiaries of the trust who are beneficiaries with
respect to the trust’s interest in the employee’s benefit are
identifiable from the trust instrument within the meaning of A-1 of
this section.

(4) The documentation described in A-6 of this section has been
provided to the plan administrator.

(c) In the case of payments to a trust having more than one
beneficiary, see A-7 of §1.401(a)(9)-5 for the rules for determining
the designated beneficiary whose life expectancy will be used to
determine the distribution period. If the beneficiary of the trust
named as beneficiary is another trust, the beneficiaries of the
other trust will be treated as having been designated as
beneficiaries of the employee under the plan for purposes of
determining the distribution period under section 401(a)(9)(A)(ii),
provided that the requirements of paragraph (b) of this A-5 are
satisfied with respect to such other trust in addition to the trust
named as beneficiary.

Q-6. If a trust is named as a beneficiary of an employee, what
documentation must be provided to the plan administrator?

A-6.

(a) Required minimum distributions before death. In order to satisfy
the documentation requirement of this A-6 for required minimum
distributions under section 401(a)(9) to commence before the death
of an employee, the employee must comply with either paragraph (a)
(1) or (2) of this A-6:

(1) The employee provides to the plan administrator a copy of the
trust instrument and agrees that if the trust instrument is amended
at any time in the future, the employee will, within a reasonable
time, provide to the plan administrator a copy of each such
amendment.

(2) The employee--

(i) Provides to the plan administrator a list of all of the
beneficiaries of the trust (including contingent and remaindermen
beneficiaries with a description of the conditions on their
entitlement);

(ii) Certifies that, to the best of the employee’s knowledge, this
list is correct and complete and that the requirements of paragraphs
(b)(1), (2), and (3) of A-5 of this section are satisfied;

(iii) Agrees that, if the trust instrument is amended at any time in
the future, the employee will, within a reasonable time, provide to
the plan administrator corrected certifications to the extent that
the amendment changes any information previously certified; and

(iv) Agrees to provide a copy of the trust instrument to the plan
administrator upon demand.

(b) Required minimum distributions after death. In order to satisfy
the documentation requirement of this A-6 for required minimum
distributions after the death of the employee, by the last day of
the calendar year immediately following the calendar year in which
the employee died, the trustee of the trust must either - -

(1) Provide the plan administrator with a final list of all
beneficiaries of the trust (including contingent and remaindermen
beneficiaries with a description of the conditions on their
entitlement) as of the end of the calendar year following the
calendar year of the employee’s death; certify that, to the best of
the trustee's knowledge, this list is correct and complete and that
the requirements of paragraph (b)(1), (2), and (3) of A-5 of this
section are satisfied; and agree to provide a copy of the trust
instrument to the plan administrator upon demand; or

(2) Provide the plan administrator with a copy of the actual trust
document for the trust that is named as a beneficiary of the
employee under the plan as of the employee's date of death.

(c) Relief for discrepancy between trust instrument and employee
certifications or earlier trust instruments.

(1) If required minimum distributions are determined based on the
information provided to the plan administrator in certifications or
trust instruments described in paragraph (a)(1), (a)(2) or (b) of
this A-6, a plan will not fail to satisfy section 401(a)(9) merely
because the actual terms of the trust instrument are inconsistent
with the information in those certifications or trust instruments
previously provided to the plan administrator, but only if the plan
administrator reasonably relied on the information provided and the
required minimum distributions for calendar years after the calendar
year in which the discrepancy is discovered are determined based on
the actual terms of the trust instrument.

(2) For purposes of determining the amount of the excise tax under
section 4974, the required minimum distribution is determined for
any year based on the actual terms of the trust in effect during the
year.

§1.401(a)(9)-5 Required minimum distributions from defined
contribution plans.

Q-1. If an employee’s benefit is in the form of an individual
account under a defined contribution plan, what is the amount
required to be distributed for each calendar year?

A-1.

(a) General rule. If an employee’s accrued benefit is in the form of
an individual account under a defined contribution plan, the minimum
amount required to be distributed for each distribution calendar
year, as defined in paragraph (b) of this A-1, is equal to the
quotient obtained by dividing the account (determined under A-3 of
this section) by the applicable distribution period (determined
under A-4 of this section). However, the required minimum
distribution amount will never exceed the entire vested account
balance on the date of the distribution. Further, the minimum
distribution required to be distributed on or before an employee’s
required beginning date is always determined under section 401(a)(9)
(A)(ii) and this A-1 and not section 401(a)(9)(A)(i).

(b) Distribution calendar year. A calendar year for which a minimum
distribution is required is a distribution calendar year. If an
employee’s required beginning date is April 1 of the calendar year
following the calendar year in which the employee attains age
70½, the employee's first distribution calendar year is the
year the employee attains age 70½. If an employee's required
beginning date is April 1 of the calendar year following the
calendar year in which the employee retires, the calendar year in
which the employee retires is the employee's first distribution
calendar year. In the case of distributions to be made in accordance
with the life expectancy rule in §1.401(a)(9)-3 and in section
401(a)(9)(B)(iii) and (iv), the first distribution calendar year is
the calendar year containing the date described in A-3(a) or A-3(b)
of §1.401(a)(9)-3, whichever is applicable.

(c) Time for distributions. The distribution required to be made on
or before the employee's required beginning date shall be treated as
the distribution required for the employee's first distribution
calendar year (as defined in paragraph (b) of this A-1). The
required minimum distribution for other distribution calendar years,
including the required minimum distribution for the distribution
calendar year in which the employee's required beginning date
occurs, must be made on or before the end of that distribution
calendar year.

(d) Minimum distribution incidental benefit requirement. If
distributions are made in accordance with this section, the minimum
distribution incidental benefit requirement of section 401(a)(9)(G)
will be satisfied.

(e) Annuity contracts. Instead of satisfying this A-1, the required
minimum distribution requirement may be satisfied by the purchase of
an annuity contract from an insurance company in accordance with A-4
of §1.401(a)(9)-6 with the employee's entire individual account. If
such an annuity is purchased after distributions are required to
commence (the required beginning date, in the case of distributions
commencing before death, or the date determined under A-3 of
§1.401(a)(9)-3, in the case of distributions commencing after
death), payments under the annuity contract purchased will satisfy
section 401(a)(9) for distribution calendar years after the calendar
year of the purchase if payments under the annuity contract are made
in accordance with §1.401(a)(9)-6. In such a case, payments under
the annuity contract will be treated as distributions from the
individual account for purposes of determining if the individual
account satisfies section 401(a)(9) for the calendar year of the
purchase. An employee may also purchase an annuity contract for a
portion of the employee’s account under the rules of A-2(c) of
§1.401(a)(9)-8

Q-2. If an employee's benefit is in the form of an individual
account and, in any calendar year, the amount distributed exceeds
the minimum required, will credit be given in subsequent calendar
years for such excess distribution?

A-2. If, for any distribution calendar year, the amount distributed
exceeds the minimum required, no credit will be given in subsequent
calendar years for such excess distribution.

Q-3. What is the amount of the account of an employee used for
determining the employee's required minimum distribution in the case
of an individual account?

A-3.

(a) In the case of an individual account, the benefit used in
determining the required minimum distribution for a distribution
calendar year is the account balance as of the last valuation date
in the calendar year immediately preceding that distribution
calendar year (valuation calendar year) adjusted in accordance with
paragraphs (b) and (c) of this A-3.

(b) The account balance is increased by the amount of any
contributions or forfeitures allocated to the account balance as of
dates in the valuation calendar year after the valuation date.
Contributions include contributions made after the close of the
valuation calendar year which are allocated as of dates in the
valuation calendar year.

(c)

(1) The account balance is decreased by distributions made in the
valuation calendar year after the valuation date.

(2)

(i) The following rule applies if any portion of the required
minimum distribution for the first distribution calendar year is
made in the second distribution calendar year (i.e., generally, the
distribution calendar year in which the required beginning date
occurs). In such case, for purposes of determining the account
balance to be used for determining the required minimum distribution
for the second distribution calendar year, distributions described
in paragraph (c)(1) shall include an additional amount. This
additional amount is equal to the amount of any distribution made in
the second distribution calendar year on or before the required
beginning date that is not in excess (when added to the amounts
distributed in the first calendar year) of the amount required to
meet the required minimum distribution for the first distribution
calendar year.

(ii) This paragraph (c)(2) is illustrated by the following example:

Example.

(i) Employee X, born October 1, 1931, is an unmarried participant in
a qualified defined contribution plan (Plan Z). After retirement, X
attains age 70½ in calendar year 2002. X's required beginning
date is April 1, 2003. As of the last valuation date under Plan Z in
calendar year 2001, which was on December 31, 2001, the value of X's
account balance was $25,300. No contributions are made or amounts
forfeited after such date which are allocated in calendar year 2001.
No rollover amounts are received after such date by Plan Z on X's
behalf which were distributed by a qualified plan or IRA in calendar
years 2001, 2002, or 2003. The applicable distribution period from
the table in A-4(a)(2) for an individual age 71 is 25.3 years. The
required minimum distribution for calendar year 2002 is $1,000
($25,300 divided by 25.3). That amount is distributed to X on April
1, 2003.

(ii) The value of X's account balance as of December 31, 2002 (the
last valuation date under Plan Z in calendar year 2002) is $26,400.
No contributions are made or amounts forfeited after such date which
are allocated in calendar year 2002. In order to determine the
benefit to be used in calculating the required minimum distribution
for calendar year 2003, the account balance of $26,400 will be
reduced by $1,000, the amount of the required minimum distribution
for calendar year 2002 made on April 1, 2003. Consequently, the
benefit for purposes of determining the required minimum
distribution for calendar year 2003 is $25,400.

(iii) If, instead of $1,000 being distributed to X, $20,000 is
distributed on April 1 2003, the account balance of $26,400 would
still be reduced by $1,000 in order to determine the benefit to be
used in calculating the required minimum distribution for calendar
year 2003. The amount of the distribution made on April 1, 2003, in
order to meet the required minimum distribution for 2002 would still
be $1,000. The remaining $19,000 ($20,000 - $1,000) of the
distribution is not the required minimum distribution for 2002.
Instead, the remaining $19,000 of the distribution is sufficient to
satisfy the required minimum distribution requirement with respect
to X for calendar year 2003. The amount which is required to be
distributed for calendar year 2003 is $1,040.10 ($25,400 divided by
24.4, the applicable distribution period for an individual age 72 ).
Consequently, no additional amount is required to be distributed to
X in 2003 because $19,000 exceeds $1,040.10. However, pursuant to
A-2 of this section, the remaining $17,959.90 ($19,000-$1,040.10)
may not be used to satisfy the required minimum distribution
requirements for calendar year 2004 or any subsequent calendar
years.

(d) If an amount is distributed by one plan and rolled over to
another plan (receiving plan), A-2 of §1.401(a)(9)-7 provides
additional rules for determining the benefit and required minimum
distribution under the receiving plan. If an amount is transferred
from one plan (transferor plan) to another plan (transferee plan),
A-3 and A-4 of §1.401(a)(9)-7 provide additional rules for
determining the amount of the required minimum distribution and the
benefit under both the transferor and transferee plans.

Q-4. For required minimum distributions during an employee's
lifetime, what is the applicable distribution period?

A-4.

(a) General rule--

(1) Applicable distribution period. Except as provided in paragraph
(b) of this A-4, the applicable distribution period for required
minimum distributions for distribution calendar years up to and
including the distribution calendar year that includes the
employee's date of death is determined using the table in paragraph
(a)(2) for the employee’s age as of the employee’s birthday in the
relevant distribution calendar year.

(2) Table for determining distribution period--

(i) General rule. The following table is used for determining the
distribution period for lifetime distributions to an employee.

    Age of          Distribution         Age of          Distribution
    the employee    period               the employee    period
    70              26.2                 93              8.8
    71              25.3                 94              8.3
    72              24.4                 95              7.8
    73              23.5                 96              7.3
    74              22.7                 97              6.9
    75              21.8                 98              6.5
    76              20.9                 99              6.1
    77              20.1                 100             5.7
    78              19.2                 101             5.3
    79              18.4                 102             5.0
    80              17.6                 103             4.7
    81              16.8                 104             4.4
    82              16.0                 105             4.1
    83              15.3                 106             3.8
    84              14.5                 107             3.6
    85              13.8                 108             3.3
    86              13.1                 109             3.1
    87              12.4                 110             2.8
    88              11.8                 111             2.6
    89              11.1                 112             2.4
    90              10.5                 113             2.2
    91              9.9	                 114             2.0
    92              9.4	                 115 and older   1.8
  

(ii) Authority for revised table. The table in A-4(a)(2)(i) of this
section may be replaced by any revised table prescribed by the
Commissioner in revenue rulings, notices, or other guidance
published in the Internal Revenue Bulletin. See §601.601(d)(2)(ii)
(b) of this chapter.

(b) Spouse is sole beneficiary. If the sole designated beneficiary
of an employee is the employee's surviving spouse, for required
minimum distributions during the employee's lifetime, the applicable
distribution period is the longer of the distribution period
determined in accordance with paragraph (a) of this A-4 or the joint
life expectancy of the employee and spouse using the employee's and
spouse's attained ages as of the employee's and the spouse's
birthdays in the distribution calendar year. The spouse is sole
designated beneficiary for purposes of determining the applicable
distribution period for a distribution calendar year during the
employee's lifetime if the spouse is the sole beneficiary of the
employee's entire interest at all times during the distribution
calendar year.

Q-5. For required minimum distributions after an employee’s death,
what is the applicable distribution period?

A-5.

(a) Death on or after the employee’s required beginning date. If an
employee dies on or after distribution has begun as determined under
A-6 of §1.401(a)(9)-2 (generally after the employee’s required
beginning date), in order to satisfy section 401(a)(9)(B)(i), the
applicable distribution period for distribution calendar years after
the distribution calendar year containing the employee’s date of
death is either - -

(1) If the employee has a designated beneficiary as of the date
determined under A-4 of §1.401(a)(9)-4, the remaining life
expectancy of the employee’s designated beneficiary determined in
accordance with paragraph(c)(1) or (2) of this A-5; or

(2) If the employee does not have a designated beneficiary as of the
date determined under A-4(a) of §1.401(a)(9)-4, the remaining life
expectancy of the employee determined in accordance with paragraph
(c)(3) of this A-5.

(b) Death before an employee's required beginning date. If an
employee dies before distribution has begun as determined under A-5
of §1.401(a)(9)-2 (generally before the employee’s required
beginning date), in order to satisfy section 401(a)(9)(B)(iii) or
(iv) and the life expectancy rule described in A-1 of §1.401(a)
(9)-3, the applicable distribution period for distribution calendar
years after the distribution calendar year containing the employee’s
date of death is the remaining life expectancy of the employee’s
designated beneficiary, determined in accordance with paragraph(c)
(1) or (2) of this A-5.

(c) Life expectancy --

(1) Nonspouse designated beneficiary. The applicable distribution
period measured by the beneficiary’s remaining life expectancy is
determined using the beneficiary’s age as of the beneficiary’s
birthday in the calendar year immediately following the calendar
year of the employee’s death. In subsequent calendar years the
applicable distribution period is reduced by one for each calendar
year that has elapsed since the calendar year immediately following
the calendar year of the employee’s death.

(2) Spouse designated beneficiary. If the surviving spouse of the
employee is the employee's sole beneficiary, the applicable period
is measured by the surviving spouse’s life expectancy using the
surviving spouse’s birthday for each distribution calendar year for
which a required minimum distribution is required after the calendar
year of the employee's death. For calendar years after the calendar
year of the spouse’s death, the spouse’s remaining life expectancy
is the life expectancy of the spouse using the age of the spouse as
of the spouse’s birthday in the calendar year of the spouse’s death.
In subsequent calendar years, the applicable distribution period is
reduced by one for each calendar year that has elapsed since the
calendar year immediately following the calendar year of the
spouse’s death.

(3) No designated beneficiary. The applicable distribution period
measured by the employee’s remaining life expectancy is the life
expectancy of the employee using the age of the employee as of the
employee’s birthday in the calendar year of the employee’s death. In
subsequent calendar years the applicable distribution period is
reduced by one for each calendar year that has elapsed since the
calendar year of death.

Q-6. What life expectancies must be used for purposes of determining
required minimum distributions under section 401(a)(9)?

A-6.

(a) General rule. Unless otherwise prescribed in accordance with
paragraph (b) of this A-6, life expectancies for purposes of
determining required minimum distributions under section 401(a)(9)
must be computed using the expected return multiples in Tables V and
VI of §1.72-9.

(b) Revised expected return table. The expected return multiples
described in paragraph (a) of this A-6 may be replaced by revised
expected return multiples prescribed for use for purposes of
determining required minimum distributions under section 401(a)(9)
by the Commissioner in revenue rulings, notices, and other guidance
published in the Internal Revenue Bulletin. See §601.601(d)(2)(ii)
(b) of this chapter.

Q-7. If an employee has more than one designated beneficiary, which
designated beneficiary's life expectancy will be used to determine
the applicable distribution period?

A-7.

(a) General rule.

(1) Except as otherwise provided in paragraph (c) of this A-7, if
more than one individual is designated as a beneficiary with respect
to an employee as of any applicable date for determining the
designated beneficiary, the designated beneficiary with the shortest
life expectancy will be the designated beneficiary for purposes of
determining the distribution period. However, except as otherwise
provided in A-5 of §1.401(a)(9)-4 and paragraph (c)(1) of this A-7,
if a person other than an individual is designated as a beneficiary,
the employee will be treated as not having any designated
beneficiaries for purposes of section 401(a)(9) even if there are
also individuals designated as beneficiaries.

(2) See A-2 of §1.401(a)(9)-8 for special rules which apply if an
employee's benefit under a plan is divided into separate accounts
(or segregated shares in the case of a defined benefit plan) and the
beneficiaries with respect to a separate account differ from the
beneficiaries of another separate account.

(b) Contingent beneficiary. Except as provided in paragraph (c)(1)
of this A-7, if a beneficiary's entitlement to an employee's benefit
is contingent on an event other than the employee's death or the
death of another beneficiary, such contingent beneficiary is
considered to be a designated beneficiary for purposes of
determining which designated beneficiary has the shortest life
expectancy under paragraph (a) of this A-7.

(c) Death contingency.

(1) If a beneficiary (subsequent beneficiary) is entitled to any
potion of an employee's benefit only if another beneficiary dies
before the entire benefit to which that other beneficiary is
entitled has been distributed by the plan, the subsequent
beneficiary will not be considered a beneficiary for purposes of
determining who is the designated beneficiary with the shortest life
expectancy under paragraph (a) of this A-7 or whether a beneficiary
who is not an individual is a beneficiary. This rule does not apply
if the other beneficiary dies prior to the applicable date for
determining the designated beneficiary.

(2) If the designated beneficiary whose life expectancy is being
used to calculate the distribution period dies on or after the
applicable date, such beneficiary's remaining life expectancy will
be used to determine the distribution period whether or not a
beneficiary with a shorter life expectancy receives the benefits.

(3) This paragraph (c) is illustrated by the following examples:

Example 1. Employer L maintains a defined contribution plan, Plan W.
Unmarried Employee C dies in calendar year 2001 at age 30. As of
December 31, 2002, D, the sister of C, is the beneficiary of C’s
account balance under Plan W. Prior to death C has designated that,
if D dies before C’s entire account balance has been distributed to
D, E, mother of C and D, will be the beneficiary of the account
balance. Because E is only entitled, as a beneficiary, to any
portion of C’s account if D dies before the entire account has been
distributed, E is disregarded in determining C’s designated
beneficiary. Accordingly, even after D’s death, D’s life expectancy
continues to be used to determined the distribution period.

Example 2.

(i) Employer M maintains a defined contribution plan, Plan X.
Employee A, an employee of M, died in 2001 at the age of 55,
survived by spouse, B, who was 50 years old. Prior to A's death, M
had established an account balance for A in Plan X. A's account
balance is invested only in productive assets. A named the trustee
of a testamentary trust (Trust P) established under A’s will as the
beneficiary of all amounts payable from the A's account in Plan X
after A’s death. A copy of the Trust P and a list of the trust
beneficiaries were provided to the plan administrator of Plan X by
the end of the calendar year following the calendar year of A’s
death. As of the date of A’s death, the Trust P was irrevocable and
was a valid trust under the laws of the state of A’s domicile. A's
account balance in Plan X was includible in A’s gross estate under §
2039.

(ii) Under the terms of Trust P, all trust income is payable
annually to B, and no one has the power to appoint Trust P principal
to any person other than B. A’s children, who are all younger than
B, are the sole remainder beneficiaries of the Trust P. No other
person has a beneficial interest in Trust P. Under the terms of the
Trust P, B has the power, exercisable annually, to compel the
trustee to withdraw from A's account balance in Plan X an amount
equal to the income earned on the assets held in A's account in Plan
X during the calendar year and to distribute that amount through
Trust P to B. Plan X contains no prohibition on withdrawal from A's
account of amounts in excess of the annual required minimum
distributions under section 401(a)(9). In accordance with the terms
of Plan X, the trustee of Trust P elects, in order to satisfy
section 401(a)(9), to receive annual required minimum distributions
using the life expectancy rule in section 401(a)(9)(B)(iii) for
distributions over a distribution period equal to B’s life
expectancy. If B exercises the withdrawal power, the trustee must
withdraw from A’s account under Plan X the greater of the amount of
income earned in the account during the calendar year or the
required minimum distribution. However, under the terms of Trust P,
and applicable state law, only the portion of the Plan X
distribution received by the trustee equal to the income earned by
A’s account in Plan X is required to be distributed to B (along with
any other trust income.)

(iii) Because some amounts distributed from A’s account in Plan X to
Trust P may be accumulated in Trust P during B’s lifetime for the
benefit of A’s children, as remaindermen beneficiaries of Trust P,
even though access to those amounts are delayed until after B’s
death, A’s children are beneficiaries of A's account in Plan X in
addition to B and B is not the sole beneficiary of A's account. Thus
the designated beneficiary used to determine the distribution period
from A's account in Plan X is the beneficiary with the shortest life
expectancy. B’s life expectancy is the shortest of all the potential
beneficiaries of the testamentary trust’s interest in A's account in
Plan X (including remainder beneficiaries). Thus, the distribution
period for purposes of section 401(a)(9)(B)(iii) is B’s life
expectancy. Because B is not the sole beneficiary of the
testamentary trust’s interest in A’s account in Plan X, the special
rule in 401(a)(9)(B)(iv) is not available and the annual required
minimum distributions from the account to Trust M must begin no
later than the end of the calendar year immediately following the
calendar year of A’s death.

Example 3.

(i) The facts are the same as Example 2 except that the testamentary
trust instrument provides that all amounts distributed from A‘s
account in Plan X to the trustee while B is alive will be paid
directly to B upon receipt by the trustee of Trust P.

(ii) In this case, B is the sole beneficiary of A’s account in Plan
X for purposes of determining the designated beneficiary under
section 401(a)(9)(B)(iii) and (iv). No amounts distributed from A's
account in Plan X to Trust P are accumulated in Trust P during B’s
lifetime for the benefit of any other beneficiary. Because B is the
sole beneficiary of the testamentary trust’s interest in A's account
in Plan X, the annual required minimum distributions from A's
account to Trust P must begin no later than the end of the calendar
year in which A would have attained age 70½. rather than the
calendar year immediately following the calendar year of A’s death.

(d) Designations by beneficiaries.

(1) If the plan provides (or allows the employee to specify) that,
after the end of the calendar year following the calendar year in
which the employee died, any person or persons have the discretion
to change the beneficiaries of the employee, then, for purposes of
determining the distribution period after the employee's death, the
employee will be treated as not having designated a beneficiary.
However, such discretion will not be found to exist merely because a
beneficiary may designate a subsequent beneficiary for distributions
of any portion of the employee’s benefit after the beneficiary dies.

(2) This paragraph (d) is illustrated by the following example:

Example. The facts are the same as in Example 1 in paragraph (c)(3)
of this A-7, except that, as permitted under the plan, D designates
E as the beneficiary of any amount remaining after the death of D
rather than C making this designation. E is still disregarded in
determining C’s designated beneficiary for purposes of section
401(a)(9).

Q-8. If a portion of an employee's individual account is not vested
as of the employee's required beginning date, how is the
determination of the required minimum distribution affected?

A-8. If the employee's benefit is in the form of an individual
account, the benefit used to determine the required minimum
distribution for any distribution calendar year will be determined
in accordance with A-1 of this section without regard to whether or
not all of the employee's benefit is vested. If any portion of the
employee's benefit is not vested, distributions will be treated as
being paid from the vested portion of the benefit first. If, as of
the end of a distribution calendar year (or as of the employee's
required beginning date, in the case of the employee's first
distribution calendar year), the total amount of the employee's
vested benefit is less than the required minimum distribution for
the calendar year, only the vested portion, if any, of the
employee's benefit is required to be distributed by the end of the
calendar year (or, if applicable, by the employee's required
beginning date). However, the required minimum distribution for the
subsequent distribution calendar year must be increased by the sum
of amounts not distributed in prior calendar years because the
employee’s vested benefit was less than the required minimum
distribution (subject to the limitation that the required minimum
distribution for that subsequent distribution calendar year will not
exceed the vested portion of the employee’s benefit). In such case,
an adjustment for the additional amount distributed which
corresponds to the adjustment described in A-3(c)(2) of this section
will be made to the account used to determine the required minimum
distribution for that calendar year.

§1.401(a)(9)-6 Required minimum distributions from defined benefit
plans.

Q-1. How must annuity distributions under a defined benefit plan be
paid in order to satisfy section 401(a)(9)?

A-1.

(a) In order to satisfy section 401(a)(9), annuity distributions
under a defined benefit plan must be paid in periodic payments made
at intervals not longer than one year (payment intervals) for a life
(or lives), or over a period certain not longer than a life
expectancy (or joint life and last survivor expectancy) described in
section 401(a)(9)(A)(ii) or section 401(a)(9)(B)(iii), whichever is
applicable. The life expectancy (or joint life and last survivor
expectancy) for purposes of determining the length of the period
certain will be determined in accordance with A-3 of this section.
Once payments have commenced over a period certain, the period
certain may not be lengthened even if the period certain is shorter
than the maximum permitted. Life annuity payments must satisfy the
minimum distribution incidental benefit requirements of A-2 of this
section. All annuity payments (life and period certain) also must
either be nonincreasing or increase only as follows:

(1) With any percentage increase in a specified and generally
recognized cost-of-living index;

(2) To the extent of the reduction in the amount of the employee’s
payments to provide for a survivor benefit upon death, but only if
the beneficiary whose life was being used to determine the period
described in section 401(a)(9)(A)(ii) over which payments were being
made dies or is no longer the employee’s beneficiary pursuant to a
qualified domestic relations order within the meaning of section
414(p);

(3) To provide cash refunds of employee contributions upon the
employee's death; or

(4) Because of an increase in benefits under the plan.

(b) The annuity may be a life annuity (or joint and survivor
annuity) with a period certain if the life (or lives, if applicable)
and period certain each meet the requirements of paragraph (a) of
this A-1. For purposes of this section, if distribution is permitted
to be made over the lives of the employee and the designated
beneficiary, references to life annuity include a joint and survivor
annuity.

(c) Distributions under a variable annuity will not be found to be
increasing merely because the amount of the payments varies with the
investment performance of the underlying assets. However, the
Commissioner may prescribe additional requirements applicable to
such variable life annuities in revenue rulings, notices, and other
guidance published in the Internal Revenue Bulletin. See §601.601(d)
(2)(ii)(b) of this chapter.

(d)

(1) Except as provided in (d)(2) of this A-1, annuity payments
must commence on or before the employee’s required beginning date
(within the meaning of A-2 of §1.401(a)(9)-2). The first payment
which must be made on or before the employee's required beginning
date must be the payment which is required for one payment interval.
The second payment need not be made until the end of the next
payment interval even if that payment interval ends in the next
calendar year. Similarly, in the case of distributions commencing
after death in accordance with section 401(a)(9)(B)(iii) and (iv),
the first payment that must be made on or before the date determined
under A-3(a) or (b) (whichever is applicable) of §1.401(a)(9)-3 must
be the payment which is required for one payment interval. Payment
intervals are the periods for which payments are received, e.g.,
bimonthly, monthly, semi-annually, or annually. All benefit accruals
as of the last day of the first distribution calendar year must be
included in the calculation of the amount of the life annuity
payments for payment intervals ending on or after the employee's
required beginning date.

(2) In the case of an annuity contract purchased after the required
beginning date, the first payment interval must begin on or before
the purchase date and the payment required for one payment interval
must be made no later than the end of such payment interval.

(3) This paragraph (d) is illustrated by the following example:
Example. A defined benefit plan (Plan X) provides monthly annuity
payments of $500 for the life of unmarried participants with a 10-
year period certain. An unmarried participant (A) in Plan X attains
age 70½ in 2001. In order to meet the requirements of this
paragraph, the first payment which must be made on behalf of A on or
before April 1, 2002, will be $500 and the payments must continue to
be made in monthly payments of $500 thereafter for the life and 10-
year certain period.

(e) If distributions from a defined benefit plan are not in the form
of an annuity, the employee's benefit will be treated as an
individual account for purposes of determining the required minimum
distribution. See §1.401(a)(9)-5.

Q-2. How must distributions in the form of a life (or joint and
survivor) annuity be made in order to satisfy the minimum
distribution incidental benefit (MDIB) requirement of section 401(a)
(9)(G)?

A-2.

(a) Life annuity for employee. If the employee’s benefit is payable
in the form of a life annuity for the life of the employee
satisfying section 401(a)(9), the MDIB requirement of section 401(a)
(9)(G) will be satisfied.

(b) Joint and survivor annuity, spouse beneficiary. If the
employee’s sole beneficiary, as of the annuity starting date for
annuity payments, is the employee’s spouse and the distributions
satisfy section 401(a)(9) without regard to the MDIB requirement,
the distributions to the employee will be deemed to satisfy the MDIB
requirement of section 401(a)(9)(G). For example, if an employee’s
benefit is being distributed in the form of a joint and survivor
annuity for the lives of the employee and the employee’s spouse and
the spouse is the sole beneficiary of the employee, the amount of
the periodic payment payable to the spouse may always be 100 percent
of the annuity payment payable to the employee regardless of the
difference in the ages between the employee and the employee’s
spouse. However, the amount of the payments under the annuity must
be nonincreasing unless specifically permitted under A-1 of this
section.

(c) Joint and survivor annuity, nonspouse beneficiary --

(1) Explanation of rule. If distributions commence under a
distribution option that is in the form of a joint and survivor
annuity for the joint lives of the employee and a beneficiary other
than the employee's spouse, the MDIB requirement will not be
satisfied as of the date distributions commence unless the
distribution option provides that annuity payments to be made to the
employee on and after the employee’s required beginning date will
satisfy the conditions of this paragraph. The periodic annuity
payment payable to the survivor must not at any time on and after
the employee’s required beginning date exceed the applicable
percentage of the annuity payment payable to the employee using the
table below. Thus, this requirement must be satisfied with respect
to any benefit increase after such date, including increases to
reflect increases in the cost of living. The applicable percentage
is based on the excess of the age of the employee over the age of
the beneficiary as of their attained ages as of their birthdays in a
calendar year. If the employee has more than one beneficiary, the
applicable percentage will be the percentage using the age of the
youngest beneficiary. Additionally, the amount of the annuity
payments must satisfy A-1 of this section.

(2) Table.

Excess of age                     Excess of age
of employee over     Applicable   of employee over      Applicable
age of beneficiary   percentage   age of beneficiary    percentage

10 years or less     100%         28                    62%
11                   96%          29                    61%
12                   93%          30                    60%
13                   90%          31                    59%
14                   87%          32                    59%
15                   84%          33                    58%
16                   82%          34                    57%
17                   79%          35                    56%
18                   77%          36                    56%
19                   75%          37                    55%
20                   73%          38                    55%
21                   72%          39                    54%
22                   70%          40                    54%
23                   68%          41                    53%
24                   67%          42                    53%
25                   66%          43                    53%
26                   64%          44 and greater        52%
27                   63%

(3) Example. This paragraph (c) is illustrated by the following
example:

Example. Distributions commence on January 1, 2001 to an employee
(Z), born March 1, 1935, after retirement at age 65. Z’s daughter
(Y), born February 5, 1965, is Z’s beneficiary. The distributions
are in the form of a joint and survivor annuity for the lives of Z
and Y with payments of $500 a month to Z and upon Z’s death of $500
a month to Y, i.e., the projected monthly payment to Y is 100
percent of the monthly amount payable to Z. There is no provision
under the option for a change in the projected payments to Y as of
April 1, 2006, Z’s required beginning date. Consequently, as of
January 1, 2001, the date annuity distributions commence, the plan
does not satisfy the MDIB requirement in operation because, as of
such date, the distribution option provides that, as of Z’s required
beginning date, the monthly payment to Y upon Z’s death will exceed
60 percent of Z’s monthly payment (the maximum percentage for a
difference of ages of 30 years).

(d) Period certain and annuity features. If a distribution form
includes a life annuity and a period certain, the amount of the
annuity payments payable to the employee must satisfy paragraph (c)
of this A-2, and the period certain may not exceed the period
determined under A-3 of this section.

Q-3. How long is a period certain under an annuity contract
permitted to extend?

A-3.

(a) Distributions commencing during the employee’s life - -

(1) Spouse beneficiary. If an employee’s spouse is the employee’s
sole beneficiary as of the annuity starting date, the period certain
for annuity distributions commencing during the life of an employee
with an annuity starting date on or after the employee’s required
beginning date is not permitted to exceed the joint life and last
survivor expectancy of the employee and the spouse using the age of
the employee and spouse as of their birthdays in the calendar year
that contains the annuity starting date.

(2) Nonspouse beneficiary. If an employee's surviving spouse is not
the employee’s sole beneficiary as of the annuity starting date, the
period certain for any annuity distributions during the life of the
employee with an annuity starting date on or after the employee’s
required beginning date is not permitted to exceed the shorter of
the applicable distribution period for the employee (determined in
accordance with the table in A-4(a)(2) of §1.401(a)(9)-5) for the
calendar year that contains the annuity starting date or the joint
life and last survivor expectancy of the employee and the employee’s
designated beneficiary, determined using the designated beneficiary
as of the annuity starting date and using their ages as of their
birthdays in the calendar year that the contains the annuity
starting date. See A-10 for the rule for annuity payments with an
annuity starting date before the required beginning date.

(b) Life expectancy rule.

(1) If annuity distributions commence after the death of the
employee under the life expectancy rule (under section 401(a)(9)
(iii) or (iv)), the period certain for any distributions commencing
after death cannot exceed the applicable distribution period
determined under A-5(b) of §1.401(a)(9)-5 for the distribution
calendar year that contains the annuity starting date.

(2) If the annuity starting date is in a calendar year before the
first distribution calendar year, the period certain may not exceed
the life expectancy of the designated beneficiary using the
beneficiary’s age in the year that contains the annuity starting
date.

Q-4. May distributions be made from an annuity contract which is
purchased from an insurance company?

A-4. Yes. Distributions may be made from an annuity contract which
is purchased with the employee's benefit by the plan from an
insurance company and which makes payments that satisfy the
provisions of this section. In the case of an annuity contract
purchased from an insurance company, there is also an exception to
the nonincreasing requirement in A-1(a) of this section for an
increase to provide a cash refund upon the employee’s death equal to
the excess of the amount of the premiums paid for the contract over
the prior distributions under the contract. If the payments actually
made under the annuity contract do not meet the requirements of
section 401(a)(9), the plan fails to satisfy section 401(a)(9).

Q-5. In the case of annuity distributions under a defined benefit
plan, how must additional benefits which accrue after the employee’s
required beginning date be distributed in order to satisfy section
401(a)(9)?

A-5.

(a) In the case of annuity distributions under a defined benefit
plan, if any additional benefits accrue after the employee’s
required beginning date, distribution of such amount as a separate
identifiable component must commence in accordance with A-1 of this
section beginning with the first payment interval ending in the
calendar year immediately following the calendar year in which such
amount accrues.

(b) A plan will not fail to satisfy section 401(a)(9) merely because
there is an administrative delay in the commencement of the
distribution of the separate identifiable component, provided that
the actual payment of such amount commences as soon as practicable
but not later than by the end of the first calendar year following
the calendar year in which the additional benefit accrues, and that
the total amount paid during such first calendar year is not less
than the total amount that was required to be paid during that year
under A-5(a) of this section.

Q-6. If a portion of an employee’s benefit is not vested as of the
employee’s required beginning date, how is the determination of the
required minimum distribution affected?

A-6 In the case of annuity distributions from a defined benefit
plan, if any portion of the employee’s benefit is not vested as of
December 31 of a distribution calendar year (or as of the employee’s
required beginning date in the case of the employee’s first
distribution calendar year), the portion which is not vested as of
such date will be treated as not having accrued for purposes of
determining the required minimum distribution for that distribution
calendar year. When an additional portion of the employee’s benefit
becomes vested, such portion will be treated as an additional
accrual. See A-5 of this section for the rules for distributing
benefits which accrue under a defined benefit plan after the
employee’s required beginning date.

Q-7. If an employee retires after the calendar year in which the
employee attains age 70½, for what period must the employee's
accrued benefit under a defined benefit plan be actuarially
increased?

A-7.

(a) Actuarial increase starting date. If an employee (other than a
5-percent owner) retires after the calendar year in which in the
employee attains age 70½, in order to satisfy section 401(a)
(9)(C)(iii), the employee’s accrued benefit under a defined benefit
plan must be actuarially increased to take into account any period
after age 70½ in which the employee was not receiving any
benefits under the plan. The actuarial increase required to satisfy
section 401(a)(9)(C)(iii) must be provided for the period starting
on the April 1 following the calendar year in which the employee
attains age 70 ½.

(b) Actuarial increase ending date. The period for which the
actuarial increase must be provided ends on the date on which
benefits commence after retirement in an amount sufficient to
satisfy section 401(a)(9).

(c) Nonapplication to plan providing same required beginning date
for all employees. If as permitted under A-2(e) of §1.401(a)(9)-2, a
plan provides that the required beginning date for purposes of
section 401(a)(9) for all employees is April 1 of the calendar year
following the calendar year in which the employee attained age
70½ (regardless of whether the employee is a 5-percent owner)
and the plan makes distributions in an amount sufficient to satisfy
section 401(a)(9) using that required beginning date, no actuarial
increase is required under section 401(a)(9)(C)(iii).

(d) Nonapplication to defined contribution plans. The actuarial
increase required under this A-7 does not apply to defined
contribution plans.

(e) Nonapplication to governmental and church plans. The actuarial
increase required under this A-7 does not apply to a governmental
plan (within the meaning of section 414(d)) or a church plan. For
purposes of this paragraph, the term church plan means a plan
maintained by a church for church employees, and the term church
means any church (as defined in section 3121(w)(3)(A)) or qualified
church-controlled organization (as defined in section 3121(w)(3)
(B)).

Q-8. What amount of actuarial increase is required under section
401(a)(9)(C)(iii)?

A-8. In order to satisfy section 401(a)(9)(C)(iii), the retirement
benefits payable with respect to an employee as of the end of the
period for actuarial increases (described in A-7 of this section)
must be no less than: the actuarial equivalent of the employee’s
retirement benefits that would have been payable as of the date the
actuarial increase must commence under A-7(a) of this section if
benefits had commenced on that date; plus the actuarial equivalent
of any additional benefits accrued after that date; reduced by the
actuarial equivalent of any distributions made with respect to the
employee’s retirement benefits after that date. Actuarial
equivalence is determined using the plan’s assumptions for
determining actuarial equivalence for purposes of satisfying section
411.

Q-9. How does the actuarial increase required under section 401(a)
(9)(C)(iii) relate to the actuarial increase required under section
411?

A-9. In order for any of an employee’s accrued benefit to be
nonforfeitable as required under section 411, a defined benefit plan
must make an actuarial adjustment to an accrued benefit the payment
of which is deferred past normal retirement age. The only exception
to this rule is that generally no actuarial adjustment is required
to reflect the period during which a benefit is suspended as
permitted under section 203(a)(3)(B) of the Employee Retirement
Income Security Act of 1974 (ERISA). The actuarial increase required
under section 401(a)(9) for the period described in A-7 of this
section is generally the same as, and not in addition to, the
actuarial increase required for the same period under section 411 to
reflect any delay in the payment of retirement benefits after normal
retirement age. However, unlike the actuarial increase required
under section 411, the actuarial increase required under section
401(a)(9)(C) must be provided even during the period during which an
employee’s benefit has been suspended in accordance with ERISA
section 203(a)(3)(B).

Q-10. What rule applies if distributions commence to an employee on
a date before the employee's required beginning date over a period
permitted under section 401(a)(9)(A)(ii) and the distribution form
is an annuity under which distributions are made in accordance with
the provisions of A-1 (and if applicable A-4) of this section?

A-10.

(a) General rule. If distributions irrevocably (except for
acceleration) commence to an employee on a date before the
employee’s required beginning date over a period permitted under
section 401(a)(9)(A)(ii) and the distribution form is an annuity
under which distributions are made in accordance with the provisions
of A-1 (and, if applicable, A-4) of this section, the annuity
starting date will be treated as the required beginning date for
purposes of applying the rules of this section and §1.401(a)(9)-3.
Thus, for example, the designated beneficiary distributions will be
determined as of the annuity starting date. Similarly, if the
employee dies after the annuity starting date but before the
required beginning date determined under A-2 of §1.401(a)(9)-2,
after the employee's death, the remaining portion of the employee's
interest must continue to be distributed in accordance with this
section over the remaining period over which distributions commenced
(single or joint lives and, if applicable, period certain). The
rules in §1.401(a)(9)-3 and section 401(a)(9)(B)(ii) or (iii) and
(iv) do not apply.

(b) Period certain. If as of the employee's birthday in the year
that contains the annuity starting date, the age of the employee is
under 70, the following rule applies in applying the rule in
paragraph (a)(2) of A-3 of this section. The applicable distribution
period for the employee (determined in accordance with the table in
A-4(a)(2) of §1.401(a)(9)-5) is 26.2 plus the difference between 70
and the age of the employee as of the employee's birthday in the
year that contains the annuity starting date.

Q- 11. What rule applies if distributions commence irrevocably
(except for acceleration) to the surviving spouse of an employee
over a period permitted under section 401(a)(9)(B)(iii)(II) before
the date on which distributions are required to commence and the
distribution form is an annuity under which distributions are made
as of the date distributions commence in accordance with the
provisions of A-1 (and if applicable A-4) of this section,

A-11. If distributions commence irrevocably (except for
acceleration) to the surviving spouse of an employee over a period
permitted under section 401(a)(9)(B)(iii)(II) before the date on
which distributions are required to commence and the distribution
form is an annuity under which distributions are made as of the date
distributions commence in accordance with the provisions of A-1 (and
if applicable A-4) of this section, distributions will be considered
to have begun on the actual commencement date for purposes of
section 401(a)(9)(B)(iv)(II). Consequently, in such case, A-5 of
§1.401(a)(9)-3 and section 401(a)(9)(B)(ii) and (iii) will not apply
upon the death of the surviving spouse as though the surviving
spouse were the employee. Instead, the annuity distributions must
continue to be made, in accordance with the provisions of A-1 (and
if applicable A-4) of this section over the remaining period over
which distributions commenced (single life and, if applicable,
period certain).

§1.401(a)(9)-7 Rollovers and Transfers.

Q-1. If an amount is distributed by one plan (distributing plan) and
is rolled over to another plan, is the benefit or the required
minimum distribution under the distributing plan affected by the
rollover?

A-1. No. If an amount is distributed by one plan and is rolled over
to another plan, the amount distributed is still treated as a
distribution by the distributing plan for purposes of section 401(a)
(9), notwithstanding the rollover.

Q-2. Q. If an amount is distributed by one plan (distributing plan)
and is rolled over to another plan (receiving plan), how are the
benefit and the required minimum distribution under the receiving
plan affected?

A-2. If an amount is distributed by one plan (distributing plan) and
is rolled over to another plan (receiving plan), the benefit of the
employee under the receiving plan is increased by the amount rolled
over. However, the distribution has no impact on the required
minimum distribution to be made by the receiving plan for the
calendar year in which the rollover is received. But, if a required
minimum distribution is required to be made by the receiving plan
for the following calendar year, the rollover amount must be
considered to be part of the employee’s benefit under the receiving
plan. Consequently, for purposes of determining any required minimum
distribution for the calendar year immediately following the
calendar year in which the amount rolled over is received by the
receiving plan, in the case in which the amount rolled over is
received after the last valuation date in the calendar year under
the receiving plan, the benefit of the employee as of such valuation
date, adjusted in accordance with A-3 of §1.401(a)(9)-5, will be
increased by the rollover amount valued as of the date of receipt.
For purposes of calculating the benefit under the receiving plan
pursuant to the preceding sentence, if the amount rolled over is
received by the receiving plan in a different calendar year from the
calendar year in which it is distributed by the distributing plan,
the amount rolled over is deemed to have been received by the
receiving plan in the calendar year in which it was distributed by
the distributing plan.

Q-3. In the case of a transfer of an amount of an employee’s benefit
from one plan (transferor plan) to another plan (transferee plan),
are there any special rules for satisfying the required minimum
distribution requirement or determining the employee’s benefit under
the transferor plan?

A-3.

(a) In the case of a transfer of an amount of an employee’s benefit
from one plan to another, the transfer is not treated as a
distribution by the transferor plan for purposes of section 401(a)
(9). Instead, the benefit of the employee under the transferor plan
is decreased by the amount transferred. However, if any portion of
an employee’s benefit is transferred in a distribution calendar year
with respect to that employee, in order to satisfy section 401(a)
(9), the transferor plan must determine the amount of the required
minimum distribution with respect to that employee for the calendar
year of the transfer using the employee’s benefit under the
transferor plan before the transfer. Additionally, if any portion of
an employee’s benefit is transferred in the employee’s second
distribution calendar year but on or before the employee’s required
beginning date, in order to satisfy section 401(a)(9), the
transferor plan must determine the amount of the required minimum
distribution requirement for the employee’s first distribution
calendar year based on the employee’s benefit under the transferor
plan before the transfer. The transferor plan may satisfy the
required minimum distribution requirement for the calendar year of
the transfer (and the prior year if applicable) by segregating the
amount which must be distributed from the employee’s benefit and not
transferring that amount. Such amount may be retained by the
transferor plan and distributed on or before the date required.

(b) For purposes of determining any required minimum distribution
for the calendar year immediately following the calendar year in
which the transfer occurs, in the case of a transfer after the last
valuation date for the calendar year of the transfer under the
transferor plan, the benefit of the employee as of such valuation
date, adjusted in accordance with A-3 of §1.401(a)(9)-5, will be
decreased by the amount transferred, valued as of the date of the
transfer.

Q-4. If an amount of an employee's benefit is transferred from one
plan (transferor plan) to another plan (transferee plan), how are
the benefit and the required minimum distribution under the
transferee plan affected?

A-4. In the case of a transfer from one plan (transferor plan) to
another (transferee plan), the general rule is that the benefit of
the employee under the transferee plan is increased by the amount
transferred. The transfer has no impact on the required minimum
distribution to be made by the transferee plan in the calendar year
in which the transfer is received. However, if a required minimum
distribution is required from the transferee plan for the following
calendar year, the transferred amount must be considered to be part
of the employee's benefit under the transferee plan. Consequently,
for purposes of determining any required minimum distribution for
the calendar year immediately following the calendar year in which
the transfer occurs, in the case of a transfer after the last
valuation date of the transferee plan in the transfer calendar year,
the benefit of the employee under the receiving plan valued as of
such valuation date, adjusted in accordance with A-3 of §1.401(a)
(9)-5, will be increased by the amount transferred valued as of the
date of the transfer.

Q-5. How are a spinoff, merger or consolidation (as defined in
§1.414(l)-1) treated for purposes of determining an employee's
benefit and required minimum distribution under section 401(a)(9)?

A-5. For purposes of determining an employee's benefit and required
minimum distribution under section 401(a)(9), a spinoff, a merger,
or a consolidation (as defined in §1.414(l)-1) will be treated as a
transfer of the benefits of the employees involved. Consequently,
the benefit and required minimum distribution of each employee
involved under the transferor and transferee plans will be
determined in accordance with A-3 and A-4 of this section.

§1.401(a)(9)-8 Special rules.

Q-1. What distribution rules apply if an employee is a participant
in more than one plan?

A-1. If an employee is a participant in more than one plan, the
plans in which the employee participates are not permitted to be
aggregated for purposes of testing whether the distribution
requirements of section 401(a)(9) are met. The distribution of the
benefit of the employee under each plan must separately meet the
requirements of section 401(a)(9). For this purpose, a plan
described in section 414(k) is treated as two separate plans, a
defined contribution plan to the extent benefits are based on an
individual account and a defined benefit plan with respect to the
remaining benefits.

Q-2. If an employee’s benefit under a plan is divided into separate
accounts (or segregated shares in the case of a defined benefit
plan), do the distribution rules in section 401(a)(9) and these
regulations apply separately to each separate account (or segregated
share)?

A-2.

(a) Except as otherwise provided in paragraphs (b) and (c) of this
A-2, if an employee’s account under a defined contribution plan plan
is divided into separate accounts (or if an employee’s benefit under
a defined benefit plan is divided into segregated shares in the case
of a defined benefit plan) under the plan, the separate accounts (or
segregated shares) will be aggregated for purposes of satisfying the
rules in section 401(a)(9). Thus, except as otherwise provided in
paragraphs (b) and (c) of this A-2, all separate accounts, including
a separate account for nondeductible employee contributions (under
section 72(d)(2)) or for qualified voluntary employee contributions
(as defined in section 219(e)), will be aggregated for purposes of
section 401(a)(9).

(b) If, for lifetime distributions, as of an employee's required
beginning date (or the beginning of any distribution calendar year
beginning after the employee’s required beginning date), or in the
case of distributions under section 401(a)(9)(B)(ii) or (iii) and
(iv), as of the end of the year following the year containing the
employee’s (or spouse's, where applicable) date of death, the
beneficiaries with respect to a separate account (or segregated
share in the case of a defined benefit plan) under the plan differ
from the beneficiaries with respect to the other separate accounts
(or segregate shares) of the employee under the plan, such separate
account (or segregated share) under the plan need not be aggregated
with other separate accounts (or segregated shares) under the plan
in order to determine whether the distributions from such separate
account (or segregated share) under the plan satisfy section 401(a)
(9). Instead, the rules in section 401(a)(9) may separately apply to
such separate account (or segregated share) under the plan. For
example, if, in the case of a distribution described in section
401(a)(9)(B)(iii) and (iv), the only beneficiary of a separate
account (or segregated share) under the plan is the employee’s
surviving spouse, and beneficiaries other than the surviving spouse
are designated with respect to the other separate accounts of the
employee, distribution of the spouse’s separate account (or
segregated share) under the plan need not commence until the date
determined under the first sentence in A-3(b) of §1.401(a)(9)-3,
even if distribution of the other separate accounts (or segregated
shares) under the plan must commence at an earlier date. In the case
of a distribution after the death of an employee to which section
401(a)(9)(B)(i) does not apply, distribution from a separate account
(or segregated share) of an employee may be made over a
beneficiary's life expectancy in accordance with section 401(a)(9)
(B)(iii) and (iv) even though distributions from other separate
accounts (or segregated shares) under the plan with different
beneficiaries are being made in accordance with the five-year rule
in section 401(a)(9)(B)(ii).

(c) A portion of an employee's account balance under a defined
contribution plan is permitted to be used to purchase an annuity
contract with a remaining amount maintained in the separate account.
In that case, the separate account under the plan must be
distributed in accordance with §1.401(a)(9)-5 in order to satisfy
section 401(a)(9) and the annuity payments under the annuity
contract must satisfy §1.401(a)(9)-6 in order to satisfy section
401(a)(9).

Q-3. What is a separate account or segregated share for purposes of
section 401(a)(9)?

A-3. (a) For purposes of section 401(a)(9), a separate account in an
individual account is a portion of an employee's benefit determined
by an acceptable separate accounting including allocating investment
gains and losses, and contributions and forfeitures, on a pro rata
basis in a reasonable and consistent matter between such portion and
any other benefits. Further, the amounts of each such portion of the
benefit will be separately determined for purposes of determining
the amount of the required minimum distribution in accordance with
§1.401(a)(9)-5.

(b) A benefit in a defined benefit plan is separated into segregated
shares if it consists of separate identifiable components which may
be separately distributed.

Q-4. Must a distribution that is required by section 401(a)(9) to be
made by the required beginning date to an employee or that is
required by section 401(a)(9)(B)(iii) and (iv) to be made by the
required time to a designated beneficiary who is a surviving spouse
be made notwithstanding the failure of the employee, or spouse where
applicable, to consent to a distribution while a benefit is
immediately distributable?

A-4. Yes. Section 411(a)(11) and section 417(e) (see §§1.411(a)
(11)-1(c)(2) and 1.417(e)-1(c)) require employee and spousal consent
to certain distributions of plan benefits while such benefits are
immediately distributable. If an employee's normal retirement age is
later than the required beginning date for the commencement of
distributions under section 401(a)(9) and, therefore, benefits are
still immediately distributable, the plan must, nevertheless,
distribute plan benefits to the participant (or where applicable, to
the spouse) in a manner that satisfies the requirements of section
401(a)(9). Section 401(a)(9) must be satisfied even though the
participant (or spouse, where applicable) fails to consent to the
distribution. In such a case, the plan may distribute in the form of
a qualified joint and survivor annuity (QJSA) or in the form of a
qualified preretirement survivor annuity (QPSA) and the consent
requirements of sections 411(a)(11) and 417(e) are deemed to be
satisfied if the plan has made reasonable efforts to obtain consent
from the participant (or spouse if applicable) and if the
distribution otherwise meets the requirements of section 417. If,
because of section 401(a)(11)(B), the plan is not required to
distribute in the form of a QJSA to a participant or a QPSA to a
surviving spouse, the plan may distribute the required minimum
distribution amount required at the time required to satisfy section
401(a)(9) and the consent requirements of sections 411(a)(11) and
417(e) are deemed to be satisfied if the plan has made reasonable
efforts to obtain consent from the participant (or spouse if
applicable) and if the distribution otherwise meets the requirements
of section 417.

Q-5. Who is an employee’s spouse or surviving spouse for purposes of
section 401(a)(9)?

A-5. Except as otherwise provided in A-6(a) (in the case of
distributions of a portion of an employee’s benefit payable to a
former spouse of an employee pursuant to a qualified domestic
relations order), for purposes of section 401(a)(9), an individual
is a spouse or surviving spouse of an employee if such individual is
treated as the employee’s spouse under applicable state law. In the
case of distributions after the death of an employee, for purposes
of determining whether, under the life expectancy rule in section
401(a)(9)(B)(iii) and (iv), the provisions of section 401(a)(9)(B)
(iv) apply, the spouse of the employee is determined as of the date
of death of the employee. Q-6. In order to satisfy section 401(a)
(9), are there any special rules which apply to the distribution of
all or a portion of an employee’s benefit payable to an alternate
payee pursuant to a qualified domestic relations order as defined in
section 414(p) (QDRO)?

A-6.

(a) A former spouse to whom all or a portion of the employee’s
benefit is payable pursuant to a QDRO will be treated as a spouse
(including a surviving spouse) of the employee for purposes of
section 401(a)(9), including the minimum distribution incidental
benefit requirement, regardless of whether the QDRO specifically
provides that the former spouse is treated as the spouse for
purposes of sections 401(a)(11) and 417.

(b)

(1) If a QDRO provides that an employee’s benefit is to be divided
and a portion is to be allocated to an alternate payee, such portion
will be treated as a separate account (or segregated share) which
separately must satisfy the requirements of section 401(a)(9) and
may not be aggregated with other separate accounts (or segregated
shares) of the employee for purposes of satisfying section 401(a)
(9). Except as otherwise provided in paragraph(b)(2) of this A-6,
distribution of such separate account allocated to an alternate
payee pursuant to a QDRO must be made in accordance with section
401(a)(9). For example, in general, distribution of such account
will satisfy section 401(a)(9)(A) if required minimum distributions
from such account during the employee’s lifetime begin not later
than the employee's required beginning date and the required minimum
distribution is determined in accordance with §1.401(a)(9)-5
for each distribution calendar year using an applicable distribution
period determined under A-4 of §1.401(a)(9)-5 using the age of
the employee in the distribution calendar year for purposes of using
the table in A-4(a)(2) of §1.401(a)(9)-5 if applicable or ages
of the employee and spousal alternate payee if their joint life
expectancy is longer than the distribution period using that table.
The determination of whether distribution from such account after
the death of the employee to the alternate payee will be made in
accordance with section 401(a)(9)(B)(i) or section 401(a)(9)(B)(ii)
or (iii) and (iv) will depend on whether distributions have begun as
determined under A-5 or §1.401(a)(9)-2 (which provides, in
general, that distributions are not treated as having begun until
the employee's required beginning date even though payments may
actually have begun before that date). For example, if the alternate
payee dies before the employee and distribution of the separate
account allocated to the alternate payee pursuant to the QDRO is to
be made to the alternate payee's beneficiary, such beneficiary may
be treated as a designated beneficiary for purposes of determining
the required minimum distribution required from such account after
the death of the employee if the beneficiary of the alternate payee
is an individual and if such beneficiary is a beneficiary under the
plan or specified to or in the plan. Specification in or pursuant to
the QDRO will also be treated as specification to the plan.

(2) Distribution of the separate account allocated to an alternate
payee pursuant to a QDRO satisfy the requirements of section 401(a)
(9)(A)(ii) if such account is to be distributed, beginning not later
than the employee’s required beginning date, over the life of the
alternate payee (or over a period not extending beyond the life
expectancy of the alternative payee). Also, if the plan permits the
employee to elect whether distribution upon the death of the
employee will be made in accordance with the five-year rule in
section 401(a)(9)(B)(ii) or the life expectancy rule in section
401(a)(9)(B)(iii) and (iv) pursuant to A-4(c) of §1.401(a)
(9)-3, such election is to be made only by the alternate payee for
purposes of distributing the separate account allocated to the
alternate payee pursuant to the QDRO. If the alternate payee dies
after distribution of the separate account allocated to the
alternate payee pursuant to a QDRO has begun (determined under A-5
of §1.401(a)(9)-2) but before the employee dies, distribution
of the remaining portion of that portion of the benefit allocated to
the alternate payee must be made in accordance with the rules in
§1.401(a)(9)-5 or §1.401(a)(9)-6 for distributions during
the life of the employee. Only after the death of the employee is
the amount of the required minimum distribution determined in
accordance with the rules that apply after the death of the
employee.

(c) If a QDRO does not provide that an employee's benefit is to be
divided but provides that a portion of an employee's benefit
(otherwise payable to the employee) is to be paid to an alternate
payee, such portion will not be treated as a separate account (or
segregated share) of the employee. Instead, such portion will be
aggregated with any amount distributed to the employee and will be
treated as having been distributed to the employee for purposes of
determining whether the required minimum distribution requirement
has been satisfied with respect to that employee.

Q-7. Will a plan fail to satisfy section 401(a)(9) where it is not
legally permitted to distribute to an alternate payee all or a
portion of an employee’s benefit payable to an alternate payee
pursuant to a QDRO within the period specified in section 414(p)(7)?

A-7. A plan will not fail to satisfy section 401(a)(9) merely
because it fails to distribute a required amount during the period
in which the issue of whether a domestic relations order is a QDRO
is being determined pursuant to section 414(p)(7), provided that the
period does not extend beyond the 18-month period described in
section 414(p)(7)(E). To the extent that a distribution otherwise
required under section 401(a)(9) is not made during this period,
this amount and any additional amount accrued during this period
will be treated as though it is not vested during the period and any
distributions with respect to such amounts must be made under the
relevant rules for nonvested benefits described in either A-8 of
§1.401(a)(9)-5 or A-6 of §1.401(a)(9)-6.

Q-8. Will a plan fail to satisfy section 401(a)(9) where an
individual's distribution from the plan is less than the amount
otherwise required to satisfy section 401(a)(9) under §1.401(a)
(9)-5 or §1.401(a)(9)-6 because distributions were being paid
under an annuity contract issued by a life insurance company in
state insurer delinquency proceedings and have been reduced or
suspended by reasons of such state proceedings?

A-8. A plan will not fail to satisfy section 401(a)(9) merely
because an individual's distribution from the plan is less than the
amount otherwise required to satisfy section 401(a)(9) under
§1.401(a)(9)-5 or §1.401(a)(9)-6 because distributions
were being paid under an annuity contract issued by a life insurance
company in state insurer delinquency proceedings and have been
reduced or suspended by reasons of such state proceedings. To the
extent that a distribution otherwise required under section 401(a)
(9) is not made during the state insurer delinquency proceedings,
this amount and any additional amount accrued during this period
will be treated as though it is not vested during the period and any
distributions with respect to such amounts must be made under the
relevant rules for nonvested benefits described in either A-8 of
§1.401(a)(9)-5 or A-6 of §1.401(a)(9)-6.

Q-9. Will a plan fail to qualify as a pension plan within the
meaning of section 401(a) solely because the plan permits
distributions to commence to an employee on or after April 1 of the
calendar year following the calendar year in which the employee
attains age 70½ even though the employee has not retired or
attained the normal retirement age under the plan as of the date on
which such distributions commence?

A-9. No. A plan will not fail to qualify as a pension plan within
the meaning of section 401(a) solely because the plan permits
distributions to commence to an employee on or after April 1 of the
calendar year following the calendar year in which the employee
attains age 70½ even though the employee has not retired or
attained the normal retirement age under the plan as of the date on
which such distributions commence. This rule applies without regard
to whether or not the employee is a 5-percent owner with respect to
the plan year ending in the calendar year in which distributions
commence.

Q-10. Is the distribution of an annuity contract a distribution for
purposes of section 401(a)(9)?

A-10. No. The distribution of an annuity contract is not a
distribution for purposes of section 401(a)(9).

Q-11. Will a payment by a plan after the death of an employee fail
to be treated as a distribution for purposes of section 401(a)(9)
solely because it is made to an estate or a trust?

A-11. A payment by a plan after the death of an employee will not
fail to be treated as a distribution for purposes of section 401(a)
(9) solely because it is made to an estate or a trust. As a result,
the estate or trust which receives a payment from a plan after the
death of an employee need not distribute the amount of such payment
to the beneficiaries of the estate or trust in accordance with
section 401(a)(9)(B). However, pursuant to A-3 of §1.401(a)
(9)-4, distribution to the estate must satisfy the five-year rule in
section 401(a)(9)(B)(iii) if the distribution to the employee had
not begun (as defined in A-6 of §1.401(a)(9)-2) as of the
employee's date of death, and pursuant to A-3 of §1.401(a)
(9)-4, an estate may not be a designated beneficiary. See A-5 and
A-6 of §1.401(a)(9)-4 for provisions under which beneficiaries
of a trust with respect to the trust's interest in an employee's
benefit are treated as having been designated as beneficiaries of
the employee under the plan.

Q-12. Will a plan fail to satisfy section 411 if the plan is amended
to eliminate benefit options that do not satisfy section 401(a)(9)?

A-12. Nothing in section 401(a)(9) permits a plan to eliminate for
all participants a benefit option that could not otherwise be
eliminated pursuant to section 411(d)(6). However, a plan must
provide that, notwithstanding any other plan provisions, it will not
distribute benefits under any option that does not satisfy section
401(a)(9). See A-3 of §1.401(a)(9)-1. Thus, the plan,
notwithstanding section 411(d)(6), must prevent participants from
electing benefit options that do not satisfy section 401(a)(9).

Q-13. Is a plan disqualified merely because it pays benefits under a
designation made before January 1, 1984, in accordance with section
242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA)?

A-13. No. Even though the distribution requirements added by TEFRA
were retroactively repealed by the Tax Reform Act of 1984 (TRA of
1984), the transitional election rule in section 242(b) of TEFRA was
preserved. Satisfaction of the spousal consent requirements of
section 4l7(a) and (e) (added by the Retirement Equity Act of 1984)
will not be considered a revocation of the pre-1984 designation.
However, sections 401(a)(11) and 417 must be satisfied with respect
to any distribution subject to those sections. The election provided
in section 242(b) of TEFRA is hereafter referred to as a section
242(b)(2) election.

Q-14. In the case in which an amount is transferred from one plan
(transferor plan) to another plan (transferee plan), may the
transferee plan distribute the amount transferred in accordance with
a section 242(b)(2) election made under either the transferor plan
or under the transferee plan?

A-14.

(a) In the case in which an amount is transferred from one plan to
another plan, the amount transferred may be distributed in
accordance with a section 242(b)(2) election made under the
transferor plan if the employee did not elect to have the amount
transferred and if the amount transferred is separately accounted
for by the transferee plan. However, only the benefit attributable
to the amount transferred, plus earnings thereon, may be distributed
in accordance with the section 242(b)(2) election made under the
transferor plan. If the employee elected to have the amount
transferred, the transfer will be treated as a distribution and
rollover of the amount transferred for purposes of this section.

(b) In the case in which an amount is transferred from one plan to
another plan, the amount transferred may not be distributed in
accordance with a section 242(b)(2) election made under the
transferee plan. If a section 242(b)(2) election was made under the
transferee plan, the amount transferred must be separately accounted
for. If the amount transferred is not separately accounted for under
the transferee plan, the section 242(b)(2) election under the
transferee plan is revoked and section 401(a)(9) will apply to
subsequent distributions by the transferee plan.

(c) A merger, spinoff, or consolidation, as defined in
§1.414(l)-1(b), will be treated as a transfer for purposes of
the section 242(b)(2) election.

Q-15. If an amount is distributed by one plan (distributing plan)
and rolled over into another plan (receiving plan), may the
receiving plan distribute the amount rolled over in accordance with
a section 242(b)(2) election made under either the distributing plan
or the receiving plan?

A-15. No. If an amount is distributed by one plan and rolled over
into another plan, the receiving plan must distribute the amount
rolled over in accordance with section 401(a)(9) whether or not the
employee made a section 242(b)(2) election under the distributing
plan. Further, if the amount rolled over was not distributed in
accordance with the election, the election under the distributing
plan is revoked and section 401(a)(9) will apply to all subsequent
distributions by the distributing plan. Finally, if the employee
made a section 242(b)(2) election under the receiving plan and such
election is still in effect, the amount rolled over must be
separately accounted for under the receiving plan and distributed in
accordance with section 401(a)(9). If amounts rolled over are not
separately accounted for, any section 242(b)(2) election under the
receiving plan is revoked and section 401(a)(9) will apply to
subsequent distributions by the receiving plan.

Q-16. May a section 242(b)(2) election be revoked after the date by
which distributions are required to commence in order to satisfy
section 401(a)(9) and this section of the regulations?

A-16. Yes. A section 242(b)(2) election may be revoked after the
date by which distributions are required to commence in order to
satisfy section 401(a)(9) and this section of the regulations.
However, if the section 242(b)(2) election is revoked after the date
by which distributions are required to commence in order to satisfy
section 401(a)(9) and this section of the regulations and the total
amount of the distributions which would have been required to be
made prior to the date of the revocation in order to satisfy section
401(a)(9), but for the section 242(b)(2) election, have not been
made, the trust must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total
amount not yet distributed which was required to have been
distributed to satisfy the requirements of section 401(a)(9) and
continue distributions in accordance with such requirements.

Par. 4. Section1.403(b)-2 is added to read as follows:

§1.403(b)-2 Required minimum distributions from annuity
contracts purchased, or custodial accounts or retirement income
accounts established, by a section 501(c)(3) organization or a
public school.

Q-1. Are section 403(b) contracts subject to the distribution rules
provided in section 401(a)(9)?

A-1.

(a) Yes. Section 403(b) contracts are subject to the distribution
rules provided in section 401(a)(9). For purposes of this section
the term section 403(b) contract means an annuity contract described
in section 403(b)(1), custodial account described in section 403(b)
(7), or a retirement income account described in section 403(b)(9).

(b) For purposes of applying the distribution rules in section
401(a)(9), section 403(b) contracts will be treated as individual
retirement annuities described in section 408(b) and individual
retirement accounts described in section 408(a) (IRAs).
Consequently, except as otherwise provided in paragraph (c), the
distribution rules in section 401(a)(9) will be applied to section
403(b) contracts in accordance with the provisions in §1.408-8.

(c)

(1) The required beginning date for purposes of section 403(b)(9) is
April 1, of the calendar year following the later of the calendar
year in which the employee attains 70½ or the calendar year
in which the employee retires from employment with the employer
maintaining the plan. The concept of 5-percent owner has no
application in the case of employees of employers described in
section 403(b)(1)(A).

(2) The rule in A-5 of §1.408-8 does not apply to section
403(b) contracts. Thus, the surviving spouse of an employee is not
permitted to treat a section 403(b) contract of which the spouse is
the sole beneficiary as the spouse’s own section 403(b) contract.

Q-2. To what benefits under section 403(b) contracts, do the
distribution rules provided in section 401(a)(9) apply?

A-2.

(a) The distribution rules provided in section 401(a)(9) apply to
all benefits under section 403(b) contracts accruing after December
31, 1986 (post-‘86 account balance). The distribution rules provided
in section 401(a)(9) do not apply to the balance of the account
balance under the section 403(b) contract valued as of December 31,
1986, exclusive of subsequent earnings (pre-‘87 account balance).
Consequently, the post-‘86 account balance includes earnings after
December 31, 1986 on contributions made before January 1, 1987, in
addition to the contributions made after December 31, 1986 and
earnings thereon. The issuer or custodian of the section 403(b)
contract must keep records that enable it to identify the pre’87
account balance and subsequent changes as set forth in paragraph (b)
of this A-2 and provide such information upon request to the
relevant employee or beneficiaries with respect to the contract. If
the issuer does not keep such records, the entire account balance
will be treated as subject to section 401(a)(9).

(b) In applying the distribution rules in section 401(a)(9), only
the post-‘86 account balance is used to calculate the required
minimum distribution required for a calendar year. The amount of any
distribution required to satisfy the required minimum distribution
requirement for a calendar year will be treated as being paid from
the post- ‘86 account balance. Any amount distributed in a calendar
year in excess of the required minimum distribution requirement for
a calendar year will be treated as paid from the pre-‘ 87 account
balance. The pre-’87 account balance for the next calendar year will
be permanently reduced by the deemed distributions from the account.

(c) The pre-’87 account balance and the post-’86 account balance
have no relevance for purposes of determining the amount includible
in income under section 72.

Q-3. Must the value of the account balance under a section 403(b)
contract as of December 31, 1986 be distributed in accordance with
the minimum distribution incidental benefit requirement?

A-3. Distributions of the entire account balance of a section 403(b)
contract, including the value of the account balance under the
contract or account as of December 31, 1986, must satisfy the
minimum distribution incidental benefit requirement. However,
distributions attributable to the the value of the account balance
under the contract or account as of December 31, 1986 is treated as
satisfying the minimum distribution incidental benefit requirement
if the such distributions satisfy the rules in effect as July 27,
1987, interpreting 1.401-1(b)(1)(i)

Q-4. Is the required minimum distribution from one section 403(b)
contract of an employee permitted to be distributed from another
section 403(b) contract in order to satisfy section 401(a)(9)?

A-4. Yes. The required minimum distribution must be separately
determined for each section 403(b) contract of an employee. However,
such amounts may then be totaled and the total distribution taken
from any one or more of the individual section 403(b) contracts.
However, under this rule, only amounts in section 403(b) contracts
that an individual holds as an employee may be aggregated. Amounts
in section 403(b) contracts that an individual holds as a
beneficiary of the same decedent may be aggregated, but such amounts
may not be aggregated with amounts held in section 403(b) contracts
that the individual holds as the employee or as the beneficiary of
another decedent. Distributions from section 403(b) contracts or
accounts will not satisfy the distribution requirements from IRAs,
nor will distributions from IRAs satisfy the distribution
requirements from section 403(b) contracts or accounts.

Par. 5. Section §1.408-8 is added to read as follows:

§1.408-8 Distribution requirements for individual retirement plans.

The following questions and answers relate to the distribution rules
for IRAs provided in sections 408(a)(6) and 408(b)(3).

Q-1. Are individual retirement plans (IRAs) subject to the
distribution rules provided in section 401(a)(9) and
§§1.401(a)(9)-1 through 1.401(a)(9)-8 for qualified plans?

A-1.

(a) Yes. Except as otherwise provided in this section, IRAs are
subject to the required minimum distribution rules provided in
section 401(a)(9) and §§1.401(a)(9)-1 through 1.401(a)
(9)-8 for qualified plans. For example, whether the five year rule
or the life expectancy rule applies to distribution after death
occurring before the IRA owner’s required beginning date will be
determined in accordance with §1.401(a)(9)-3, the rules of
§1.401(a)(9)-4 apply for purposes of determining an IRA owner’s
designated beneficiary, the amount of the required minimum
distribution required for each calendar year from an individual
account will be determined in accordance with §1.401(a)(9)-5,
and whether annuity payments from an individual retirement annuity
satisfy section 401(a)(9) will be determined under §1.401(a)
(9)-6. For this purpose the term IRA means an individual retirement
account or annuity described in section 408(a) or (b).

(b) For purposes of applying the required minimum distribution rules
in §§1.401(a)(9)-1 through 1.401(a)(9)-8 for qualified
plans, the IRA trustee, custodian, or issuer is treated as the plan
administrator, and the IRA owner is substituted for the employee

Q-2. Are employer contributions under a simplified employee pension
(defined in section 408(k)) or a SIMPLE IRA (defined in section
408(p)) treated as contributions to an IRA?

A-2. Yes. IRAs that receive employer contributions under a
simplified employee pension (defined in section 408(k)) or a SIMPLE
plan (defined in section 408(p)) are treated as IRAs for purposes of
section 401(a) and are, therefore, subject to the distribution rules
in this section.

Q-3. In the case of distributions from an IRA, what does the term
required beginning date mean?

A-3. In the case of distributions from an IRA, the term required
beginning date means April 1 of the calendar year following the
calendar year in which the individual attains age 70½.

Q-4. When is the amount of a distribution from a IRA not eligible
for rollover because the amount is a required minimum distribution?

A-4. The amount of a distribution that is a required minimum
distribution from an IRA and thus not eligible for rollover is
determined in the same manner as provided in Q&A-7 of
§1.402(c)-2 for distributions from qualified plans. For
example, if a required minimum distribution is required for a
calendar year, the amounts distributed during a calendar year from
an IRA are treated as required minimum distributions under section
401(a)(9) to the extent that the total required minimum distribution
for the year under section 401(a)(9) for that IRA has not been
satisfied. This requirement may be satisfied by a distribution from
the IRA or, as permitted under A-9 of this section, from another
IRA.

Q-5. May an individual's surviving spouse elect to treat such
spouse’s entire interest as a beneficiary in an individual’s IRA
upon the death of the individual (or the remaining part of such
interest if distribution to the spouse has commenced) as the
spouse’s own account?

A-5.

(a) The surviving spouse of an individual may elect in the manner
described in paragraph (b) of this A-5 to treat the spouse's entire
interest as a beneficiary in an individual’s IRA (or the remaining
part of such interest if distribution thereof has commenced to the
spouse) as the spouse's own IRA. This election is permitted to be
made at any time after the distribution of the required minimum
amount for the account for the calendar year containing the
individual's date of death. In order to make this election, the
spouse must be the sole beneficiary of the IRA and have an unlimited
right to withdrawal amounts from the IRA. This requirement is not
satisfied if a trust is named as beneficiary of the IRA even if the
spouse is the sole beneficiary of the trust. If the surviving spouse
makes such an election, the surviving spouse’s interest in the IRA
would then be subject to the distribution requirements of section
401(a)(9)(A) applicable to the spouse as the IRA owner rather than
those of section 401(a)(9)(B) applicable to the surviving spouse as
the decedent IRA owner’s beneficiary. Thus, the required minimum
distribution for the year of the election and each subsequent year
would be determined under section 401(a)(9)(A) with the spouse as
IRA owner and not section 401(a)(9)(B).

(b) The election described in paragraph (a) of this A-5 is made by
the surviving spouse redesignating the account as the account in the
name of the surviving spouse as IRA owner rather than as
beneficiary. Alternatively, a surviving spouse eligible to make the
election is deemed to have made the election if, at any time, either
of the following occurs:

(1) Any required amounts in the account (including any amounts that
have been rolled over or transferred, in accordance with the
requirements of section 408(d)(3)(A)(i), into an individual
retirement account or individual retirement annuity for the benefit
of such surviving spouse) have not been distributed within the
appropriate time period applicable to the surviving spouse as
beneficiary under section 401(a)(9)(B); or

(2) Any additional amounts are contributed to the account (or to the
account or annuity to which the surviving spouse has rolled such
amounts over, as described in (1) above) which are subject, or
deemed to be subject, to the distribution requirements of section
401(a)(9)(A).

(c) The result of an election described in paragraph (b) of this
A-5is that the surviving spouse shall then be considered the IRA
owner for whose benefit the trust is maintained for all purposes
under the Code (e.g. section 72(t)).

Q-6. How is the benefit determined for purposes of calculating the
required minimum distribution from an IRA?

A-6. For purposes of determining the required minimum distribution
required to be made from an IRA in any calendar year, the account
balance of the IRA as of the December 31 of the calendar year
immediately preceding the calendar year for which distributions are
being made will be substituted in A-3 of §1.401(a)(9)-5 for the
account of the employee. The account balance as of December 31 of
such calendar year is the value of the IRA upon close of business on
such December 31. However, for purposes of determining the required
minimum distribution for the second distribution calendar year for
an individual, the account balance as of December 31 of such
calendar year must be reduced by any distribution (as described in
A-3(c)(2) of §1.401(a)(9)-5) made to satisfy the required
minimum distribution requirements for the individual's first
distribution calendar year after such date.

Q-7. What rules apply in the case of a rollover to an IRA of an
amount distributed by a qualified plan or another IRA?

A-7. If the surviving spouse of an employee rolls over a
distribution from a qualified plan, such surviving spouse may elect
to treat the IRA as the spouse’s own IRA in accordance with the
provisions in A-5 of this section. In the event of any other
rollover to an IRA of an amount distributed by a qualified plan or
another IRA, the rules in §1.401(a)(9)-3 will apply for
purposes of determining the account balance for the receiving IRA
and the required minimum distribution from the receiving IRA.
However, because the value of the account balance is determined as
of December 31 of the year preceding the year for which the required
minimum distribution is being determined and not as of a valuation
date in the preceding year, the account balance of the receiving IRA
need not be adjusted for the amount received as provided in A-2 of
§1.401(a)(9)-7 in order to determine the required minimum
distribution for the calendar year following the calendar year in
which the amount rolled over is received, unless the amount received
is deemed to have been received in the immediately preceding year,
pursuant to A-2 of §1.401(a)(9)-7. In that case, for purposes
of determining the required minimum distribution for the calendar
year in which such amount is actually received, the account balance
of the receiving IRA as of December 31 of the preceding year must be
adjusted by the amount received in accordance with A-2 of
§1.401(a)(9)-7).

Q-8. What rules apply in the case of a transfer from one IRA to
another?

A-8. In the case of a transfer from one IRA to another IRA, the
rules in A-3 or A-4 of §1.401(a)(9)-7 will apply for purposes
of determining the account balance of, and the required minimum
distribution from, the IRAs involved. Thus, the transferor IRA must
distribute in the year of the transfer any amount required
determined without regard to the transfer. For purposes of
determining the account balance of the transferee IRA and the
transferor IRA, the account balance need not be adjusted for the
amount transferred as provided in A-4 of §1.401(a)(9)-7 in
order to calculate the required minimum distribution for the
calendar year following the calendar year of the transfer, because
the account balance is determined as of December 31 of the calendar
year immediately preceding the calendar year for which the required
minimum distribution is being determined.

Q-9. Is the required minimum distribution from one IRA of an owner
permitted to be distributed from another IRA in order to satisfy
section 401(a)(9).

A-9. Yes. The required minimum distribution must be calculated
separately for each IRA. However, such amounts may then be totaled
and the total distribution taken from any one or more of the
individual IRAs. However, under this rule, only amounts in IRAs that
an individual holds as the IRA owner may be aggregated. Amounts in
IRAs that an individual holds as a beneficiary of the same decedent
may be aggregated, but such amounts may not be aggregated with
amounts held in IRAs that the individual holds as the IRA owner or
as the beneficiary of another decedent. Distributions from section
403(b) contracts or accounts will not satisfy the distribution
requirements from IRAs, nor will distributions from IRAs satisfy the
distribution requirements from section 403(b) contracts or accounts.
Distributions from Roth IRAs (defined in section 408A) will not
satisfy the distribution requirements applicable to IRAs or section
403(b) accounts or contracts and distributions from IRAs or section
403(b) contracts or accounts will not satisfy the distribution
requirements from Roth IRAs.

Q-10. Is the trustee, custodian, or issuer of an IRA required to
report the amount that is required to be distributed from that IRA?

A-10. Yes. The trustee, custodian, or issuer of an IRA is required
to report to the Internal Revenue Service and to the IRA owner the
amount required to be distributed from the IRA for each calendar
year at the time and in the manner prescribed in the instructions to
the applicable Federal tax forms, as well as any additional
information as required by such forms or such instructions.

PART 54 -- PENSION EXCISE TAXES

Par. 6. The authority citation for part 54 is amended by adding the
following citation to read as follows:

Authority: 26 U.S.C. 7805 ***

§54.4974-2 is also issued under 26 U.S.C. 4974.

Par. 7. Section after §54.4974-2 is added to read as follows:

§54.4974-2 Excise tax on accumulations in qualified retirement
plans.

Q-1. Is any tax imposed on a payee under any qualified retirement
plan or any eligible deferred compensation plan (as defined in
section 457(b)) to whom an amount is required to be distributed for
a taxable year if the amount distributed during the taxable year is
less than the required minimum distribution?

A-1. Yes. If the amount distributed to a payee under any qualified
retirement plan or any eligible deferred compensation plan (as
defined in section 457(b)) for a calendar year is less than the
required minimum distribution for such year, an excise tax is
imposed on such payee under section 4974 for the taxable year
beginning with or within the calendar year during which the amount
is required to be distributed. The tax is equal to 50 percent of the
amount by which such required minimum distribution exceeds the
actual amount distributed during the calendar year. Section 4974
provides that this tax shall be paid by the payee. For purposes of
section 4974, the term required minimum distribution means the
required minimum distribution amount required to be distributed
pursuant to section 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or
457(d)(2), as the case may be, and the regulations thereunder.
Except as otherwise provided in Q&A-6, the required minimum
distribution for a calendar year is the required minimum
distribution amount required to be distributed during the calendar
year. Q&A-7 provides a special rule for amounts required to be
distributed by an employee’s (or individual’s) required beginning
date.

Q-2. For purposes of section 4974, what is a qualified retirement
plan?

A-2. For purposes of section 4974, each of the following is a
qualified retirement plan - -

(a) A plan described in section 401(a) which includes a trust exempt
from tax under section 501(a);

(b) An annuity plan described in section 403(a);

(c) An annuity contract, custodial account, or retirement income
account described in section 403(b);

(d) An individual retirement account described in section 408(a);

(e) An individual retirement annuity described in section 408(b); or

(f) Any other plan, contract, account, or annuity that, at any time,
has been treated as a plan, account, or annuity described in (a)
through (e) of this A-2, whether or not such plan, contract,
account, or annuity currently satisfies the applicable requirements
for such treatment.

Q-3. If a payee’s interest under a qualified retirement plan is in
the form of an individual account, how is the required minimum
distribution for a given calendar year determined for purposes of
section 4974?

A-3.

(a) General rule. If a payee’s interest under a qualified retirement
plan is in the form of an individual account and distribution of
such account is not being made under an annuity contract purchased
in accordance with A-4 of §1.401(a)(9)-6, the amount of the
required minimum distribution for any calendar year for purposes of
section 4974 is the required minimum distribution amount required to
be distributed for such calendar year in order to satisfy the
required minimum distribution requirements in §1.401(a)(9)-5 as
provided in the following (whichever is applicable) - -

(1) Section 401(a)(9) and §§1.401(a)(9)-1 through 1.401(a)
(9)-8 in the case of a plan described in section 401(a) which
includes a trust exempt under section 501(a) or an annuity plan
described in section 403(a));

(2) Section 403(b)(10) and §1.403(b)-2 (in the case of an
annuity contract, custodial account, or retirement income account
described in section 403(b)); or

(3) Section 408(a)(6) or (b)(3) and §1.408-8 (in the case of an
individual retirement account or annuity described in section 408(a)
or (b)).

(b) Default provisions. Unless otherwise provided under the
qualified retirement plan (or, if applicable, the governing
instrument of the qualified retirement plan), the default provisions
in A-4(a) of §1.401(a)(9)-3 apply in determining the required
minimum distribution for purposes of section 4974.

(c) Five year rule. If the five-year rule in section 401(a)(9)(B)
(ii) applies to the distribution to a payee, no amount is required
to be distributed for any calendar year to satisfy the applicable
enumerated section in paragraph (a) of this A-3 until the calendar
year which contains the date five years after the date of the
employee's death. For the calendar year which contains the date five
years after the employee's death, the required minimum distribution
amount required to be distributed to satisfy the applicable
enumerated section is the payee's entire remaining interest in the
qualified retirement plan.

Q-4. If a payee's interest in a qualified retirement plan is being
distributed in the form of an annuity, how is the amount of the
required minimum distribution determined for purposes of section
4974?

A-4. If a payee's interest in a qualified retirement plan is being
distributed in the form of an annuity (either directly from the
plan, in the case of a defined benefit plan, or under an annuity
contract purchased from an insurance company), the amount of the
required minimum distribution for purposes of section 4974 will be
determined as follows:

(a) Permissible annuity distribution option. A permissible annuity
distribution option is an annuity contract (or, in the case of
annuity distributions from a defined benefit plan, a distribution
option) which specifically provides for distributions which, if made
as provided, would for every calendar year equal or exceed the
required minimum distribution amount required to be distributed to
satisfy the applicable section enumerated in paragraph (a) of A-2 of
this section for every calendar year. If the annuity contract (or,
in the case of annuity distributions from a defined benefit plan, a
distribution option) under which distributions to the payee are
being made is a permissible annuity distribution option, the
required minimum distribution for a given calendar year will equal
the amount which the annuity contract (or distribution option)
provides is to be distributed for that calendar year.

(b) Impermissible annuity distribution option. An impermissible
annuity distribution option is an annuity contract (or, in the case
of annuity distributions from a defined benefit plan, a distribution
option) under which distributions to the payee are being made that
specifically provides for distributions which, if made as provided,
would for any calendar year be less than the required minimum
distribution amount required to be distributed to satisfy the
applicable section enumerated in paragraph (a) of A-3 of this
section. If the annuity contract (or, in the case of annuity
distributions from a defined benefit plan, the distribution option)
under which distributions to the payee are being made is an
impermissible annuity distribution option, the required minimum
distribution for each calendar year will be determined as follows:

(1) If the qualified retirement plan under which distributions are
being made is a defined benefit plan, the required minimum
distribution amount required to be distributed each year will be the
amount which would have been distributed under the plan if the
distribution option under which distributions to the payee were
being made was the following permissible annuity distribution
option:

(i) In the case of distributions commencing before the death of the
employee, if there is a designated beneficiary under the
impermissible annuity distribution option for purposes of section
401(a)(9), the permissible annuity distribution option is the joint
and survivor annuity option under the plan for the lives of the
employee and the designated beneficiary which provides for the
greatest level amount payable to the employee determined on an
annual basis. If the plan does not provide such an option or there
is no designated beneficiary under the impermissible distribution
option for purposes of section 401(a)(9), the permissible annuity
distribution option is the life annuity option under the plan
payable for the life of the employee in level amounts with no
survivor benefit.

(ii) In the case of distributions commencing after the death of the
employee, if there is a designated beneficiary under the
impermissible annuity distribution option for purposes of section
401(a)(9), the permissible annuity distribution option is the life
annuity option under the plan payable for the life of the designated
beneficiary in level amounts. If there is no designated beneficiary,
the five-year rule in section 401(a)(9)(B)(ii) applies. See
paragraph (b)(3) of this A-4. The determination of whether or not
there is a designated beneficiary and the determination of which
designated beneficiary’s life is to be used in the case of multiple
beneficiaries will be made in accordance with §1.401(a)(9)-4
and A-7 of §1.401(a)(9)-5. If the defined benefit plan does not
provide for distribution in the form of the applicable permissible
distribution option, the required minimum distribution for each
calendar year will be an amount as determined by the Commissioner.

(2) If the qualified retirement plan under which distributions are
being made is a defined contribution plan and the impermissible
annuity distribution option is an annuity contract purchased from an
insurance company, the required minimum distribution amount required
to be distributed each year will be the amount which would have been
distributed in the form of an annuity contract under the permissible
annuity distribution option under the plan determined in accordance
with paragraph (b)(1) of this A-4 for defined benefit plans. If the
defined contribution plan does not provide the applicable
permissible annuity distribution option, the required minimum
distribution for each calendar year will be the amount which would
have been distributed under an annuity described below in paragraph
(b)(2)(i) or (ii) of this A-4 purchased with the employee's or
individual's account used to purchase the annuity contract which is
the impermissible annuity distribution option.

(i) In the case of distributions commencing before the death of the
employee, if there is a designated beneficiary under the
impermissible annuity distribution option for purposes of section
401(a)(9), the annuity is a joint and survivor annuity for the lives
of the employee and the designated beneficiary which provides level
annual payments and which would have been a permissible annuity
distribution option. However, the amount of the periodic payment
which would have been payable to the survivor will be the applicable
percentage under the table in A-2(b) of §1.401(a)(9)-6 of the
amount of the periodic payment which would have been payable to the
employee or individual. If there is no designated beneficiary under
the impermissible distribution option for purposes of section 401(a)
(9), the annuity is a life annuity for the life of the employee with
no survivor benefit which provides level annual payments and which
would have been a permissible annuity distribution option.

(ii) In the case of a distribution commencing after the death of the
employee, if there is a designated beneficiary under the
impermissible annuity distribution option for purposes of section
401(a)(9), the annuity option is a life annuity for the life of the
designated beneficiary which provides level annual payments and
which would have been permissible annuity distribution option. If
there is no designated beneficiary, the five year rule in section
401(a)(9)(B)(ii) applies. See paragraph (b)(3) of this A-4. The
amount of the payments under the annuity contract will be determined
using the interest rate and actuarial tables prescribed under
section 7520 determined using the date determined under A-3 of
1.401(a)(9)-3 when distributions are required to commence and using
the age of the beneficiary as of the beneficiary’s birthday in the
calendar year that contains that date. The determination of whether
or not there is a designated beneficiary and the determination of
which designated beneficiary's life is to be used in the case of
multiple beneficiaries will be made in accordance with
§1.401(a)(9)-3 and A-7 of §1.401(a)(9)-5.

(3) If the five-year rule in section 401(a)(9)(B)(ii) applies to the
distribution to the payee under the contract (or distribution
option), no amount is required to be distributed to satisfy the
applicable enumerated section in paragraph (a) of this A-4 until the
calendar year which contains the date five years after the date of
the employee's death. For the calendar year which contains the date
five years after the employee's death, the required minimum
distribution amount required to be distributed to satisfy the
applicable enumerated section is the payee's entire remaining
interest in the annuity contract (or under the plan in the case of
distributions from a defined benefit plan).

Q-5. If there is any remaining benefit with respect to an employee
(or IRA owner) after any calendar year in which the entire remaining
benefit is required to be distributed under section 401(a)(9), what
is the amount of the required minimum distribution for each calendar
year subsequent to such calendar year?

A-5. If there is any remaining benefit with respect to an employee
(or IRA owner) after the calendar year in which the entire remaining
benefit is required to be distributed, the required minimum
distribution for each calendar year subsequent to such calendar year
is the entire remaining benefit.

Q-6 If a payee has an interest under an eligible deferred
compensation plan (as defined in section 457(b)), how is the
required minimum distribution for a given taxable year of the payee
determined for purposes of section 4974?

A-6. If a payee has an interest under an eligible deferred
compensation plan (as defined in section 457(b)), the required
minimum distribution for a given taxable year of the payee
determined for purposes of section 4974 is determined under section
457(d).

Q-7. With respect to which calendar year is the excise tax under
section 4974 imposed in the case in which the amount not distributed
is an amount required to be distributed by April 1 of a calendar
year (by the employee’s or individual’s required beginning date)?

A-7. In the case in which the amount not paid is an amount required
to be paid by April 1 of a calendar year, such amount is a required
minimum distribution for the previous calendar year, i.e., for the
employee’s or the individual’s first distribution calendar year.
However, the excise tax under section 4974 is imposed for the
calendar year containing the last day by which the amount is
required to be distributed, i.e., the calendar year containing the
employee’s or individual’s required beginning date, even though the
preceding calendar year is the calendar year for which the amount is
required to be distributed. Pursuant to A-2 of §1.401(a)(9)-5,
amounts distributed in the employee's or individual's first
distribution calendar year will reduce the amount required to be
distributed in the next calendar year by the employee's or
individual's required beginning date. There is also a required
minimum distribution for the calendar year which contains the
employee's or individual’s required beginning date. Such
distribution is also required to be made during the calendar year
which contains the employee's or individual’s required beginning
date.

Q-8. Are there any circumstances when the excise tax under section
4974 for a taxable year may be waived?

A-8.

(a) Reasonable cause. The tax under section 4974(a) may be waived if
the payee described in section 4974(a) establishes to the
satisfaction of the Commissioner the following - -

(1) The shortfall described in section 4974(a) in the amount
distributed in any taxable year was due to reasonable error; and

(2) Reasonable steps are being taken to remedy the shortfall.

(b) Automatic Waiver. The tax under section 4974 will be
automatically waived, unless the Commissioner determines otherwise,
if - -

(1) The payee described in section 4974(a) is an individual who is
the sole beneficiary and whose required minimum distribution amount
for a calendar year is determined under the life expectancy rule
described in §1.401(a)(9)-3 A-3 in the case of an employee’s or
individual’s death before the employee’s or individual’s required
beginning date; and

(2) The employee’s or individual's entire benefit to which that
beneficiary is entitled is distributed by the end of the fifth
calendar year following the calendar year that contains the
employee’s or individual’s date of death.

-------

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

SEARCH:

You can search the entire Tax Professionals section, or all of Uncle Fed's Tax*Board. For a more focused search, put your search word(s) in quotes.

2001 Regulations Main | IRS Regulations Main | Home