Reduction Method
Could someone please explain to me in simple terms (i’m a little slow) 😳 what the reduction method is and how it works?
Thanks Much
You are probably referring to the difference between the recalculation method vrs the non recalculation of RMD divisors.
For the non recalculation method that applies to non spouse beneficiaries, the RMD table only needs to be checked in the first year of RMDs. For later years, that initial divisor is reduced by 1.0 for each year. That means that it will be 1.0 less than any prior year. The life expectancy is NOT increased because the beneficiary lived for another year, and therefore reflects only the life expectancy that existed in the year following the owner’s death.
For spousal beneficiaries using their own life expectancy or for IRA owners, the RMD table is consulted each year for the new divisor based on the new age age. This divisor will reduce less than 1.0 because a new life expectancy for that particular year forward is considered.
That means that it will be 1.0 less than any prior year. The life expectancy is NOT increased because the beneficiary lived for another year, and therefore reflects only the life expectancy that existed in the year following the owner’s death.
This is clear, thank you!!
Permalink Submitted by Al Fry on Thu, 2009-01-29 19:30
Are you talking about the reduction method for calculation of RMDs for inherited IRAs and annuities?