determining life expectancy number to use as divisor in calc
I inherited an IRA from my mother, who was born 1/22/1925 and died 3/20/2000 (after she had begun her mandatory distributions).
As per IRS Notice 1270 (a February 2001 Supplement to Pub 590) I began my mandatory distributions by Dec 31 of the year after her death, on 12/17/2001 to be exact.
My date of birth is 12/11/1949.
To determine my life expectancy to be used for calculation of the distribution amount, I used 2001 Pub 590, Appendix C, Table 1 (for Single Life Expectancy; For Use by Beneficiaries).
Since I turned 52 on 12/11/2001, the life expectancy value indicated by the table is 31.3 years.
That is the number I used to calculate my distribution for 2001, and then reduced by 1 every year after that, which worked out to be 21.3 years for the 2011 distribution.
When I called Vanguard in January 2012 to set up automatic distributions from my IRA, the life expectancy number they listed for me for 2012 is 21.3 years. I think it ought to be 20.3 years.
Where did I go wrong, please, or did I? Thank you for your help.
Permalink Submitted by tomd37 on Wed, 2012-11-21 12:56
Assuming you had the initial factor correct (I don’t have a Pub 590 available right now), I believe it is because there was no required mimimum distribution in the year 2009. All RMDs were suspended that year.
Permalink Submitted by mk foss on Wed, 2012-11-21 18:27
The beginning point for RMDs is the year after the death of the original owner. In 2001, you were 52 and the factor is 32.3 per the single life table. The table changed in 2002 when the regulations were finalized. Vanguard has the correct figure.
Permalink Submitted by Alan Spross on Wed, 2012-11-21 20:44
I agree. Vanguard has the correct figure. You have been taking out slightly more than you needed to from the beginning since your error was in calculating the 2001 divisor as 31.3 instead of 32.3. For the 2010 restart of RMDs after the 2009 waiver, the divisor for 2008 should be reduced by 2.0, one for each year. You would then end up with a divisor of 21.3 for 2012.
Permalink Submitted by Andrea Russell on Thu, 2012-11-22 09:25
Thank you all for your quick replies. The problem is clearly with the initial life expectancy number I used. But Alan-oniras, where did you get 32.3 from, please? I have the IRS website page open on my computer now, for 2001 Pub 590: http://www.irs.gov/pub/irs-prior/p590–2001.pdf (I think we agree that 2001 is the correct year to use since my mother passed away in 2000). The number I see in the Single Life Expectancy table on p82, for someone aged 52, is the one I used: 31.3 . Sorry, I must be missing something here but I don’t see where I should be looking if not at this particular table. Could you please un-confuse me? Thank you!
Permalink Submitted by Alan Spross on Thu, 2012-11-22 17:48
Glad you were persistent in getting to the bottom of this.
My comment that your divisor was incorrect from the beginning is itself incorrect. Here is what happened. In April, 2002 the IRS released new RMD Regs and new updated mortality tables that included longer life expectancies. Under these Regs for CY 2002 you had your choice between using the prior tables (as indicated in your 2001 Pub 590) or the updated tables. Starting for CY 2003, the updated tables which are the same as the current tables were applicable. The following is copied from the 2002 RMD Regs:
>>>>>>>>>>>>>>
Thus, in the case of an
employee who died prior to January 1,
2003, the designated beneficiary must
be redetermined in accordance with the
provisions of § 1.401(a)(9)–4 and the
applicable distribution period
(determined under § 1.401(a)(9)–5 or
1.401(a)(9)–6T, whichever is applicable)
must be reconstructed for purposes of
determining the amount required to be
distributed for calendar years beginning
on or after January 1, 2003.
>>>>>>>>>>>>>>
Note that an IRA owner is considered the “employee” for purposes of the prior paragraph. As it turned out, for a 52 year old beneficiary in the old tables the new divisor added a full year to the life expectancy and became 32.3 in the new table. The “reconstruction” noted in the text above meant that as of 2003, the RMD would be determined under the new tables and that process involves getting the new divisor for age 52 from the new tables and reducing it by 1.0 each year. This is where the omission occurred.
As a result you took a slightly higher amount for your RMDs than you needed to after 2001, but for 2001 your divisor was correct. So you used the correct divisor to start, but did not make the RMD reconstruction for years after 2001, but you can certainly make it now. This is what Vanguard did to get the current divisor, using the current tables only.
Permalink Submitted by Andrea Russell on Fri, 2012-11-23 08:29
Aaaahhh! Now I get it! Thank you for your patience and the super clear explanation.
Andrea