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IRA and TSP Retirement Plans Require Minimum Distributions

There are minimum distributions that IRA and retirement plan participants must begin taking at age 70 1/2.  They are called required minimum distributions, or RMDs, and they are based on two factors.  Factor one is the year end (i.e., December 31) account balance.  Factor two is a number taken from the appropriate distribution table found in IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).  The number represents the “distribution period”.

Participants must take their first RMD by April 1 of the year after the year in which they reach the age of 70 1/2 and must take all subsequent RMDs by the end of the calendar year.  I turned 70 1/2 in May and, therefore, have to take my first RMD by April 1, 2018.

There are two major distribution tables found in the appendices of Publication 590-B.  The one that is used by most people is the “uniform life expectancy” table and must be used by those who are unmarried, those whose spouse is not more than 10 years younger, and those for whom the spouse is not the sole beneficiary.  The other table is the “joint life expectancy” table and can be used by those whose spouse is more than 10 years younger and is the sole beneficiary.  With the joint life expectancy table, the actual age difference between the participant and the beneficiary determines the distribution (the greater the age difference, the smaller the required distribution).

The joint life expectancy table does not require that as large of an RMD be taken because, presumably, if there is a large age difference between spouses, the surviving spouse will need to draw on the proceeds of the retirement account for a longer period of time.  Using the joint table, a 71 year old with a 55 year old spouse would have to take a distribution of $6,431 from a retirement account with a balance of $200,000.  The uniform requires, on the other hand requires that the participant take a larger distribution.  A 71 year old using this table would have to take a distribution of $7,547 from a $200,000 account.

In an IRA, a participant whose spouse is more than 10 years younger is allowed to use the joint table.  Not so in the TSP.  The Thrift Savings Plan requires those taking required minimum distributions to follow the “uniform life expectancy” table, even if they would otherwise qualify to use the “joint life expectancy” table.  When asked the reason for this, Kim Weaver, the TSP spokesperson stated that the Thrift Board “… has selected the IRS Uniform Lifetime Table to calculate minimum distributions because of the size of the TSP (5 million participants) and the difficulty of obtaining and verifying spouse and other beneficiary information necessary to calculate required minimum distributions using the joint life table.”

This restriction imposed by the Thrift Board will not be a big deal for most participants, as the average 70 1/2 + TSP participant is taking out a larger amount than an RMD anyhow.  However, those who were expecting to use the joint life expectancy table should prepare to be disappointed when they begin their RMDs.