December 26, 2011
This installment of South Carolina Estate Lawyer A to Z continues with the theme of retirement accounts. Defining the term JOINT AND LAST SURVIVOR TABLE requires a small amount of background about retirement accounts.
As you may know, federal tax law allows for the deferral of income taxes for compensation income that is placed into traditional IRAs or into qualified retirement accounts such as 401Ks. While federal law allows this tax deferral for a time, the law does not grant deferral forever. What the law gives it does eventually want to take back.
Participants in these tax advantaged accounts are required to begin taking distributions from these accounts in the year that they reach age seventy and a half years. The distributions thus taken are then subjected to income taxes.
The calculation of these required distributions, officially termed Required Minimum Distributions, is relatively simple to accomplish. You simply obtain a divisor from an IRS published table called the Uniform Lifetime Table and divide the prior year end account balance by the applicable divisor and the result is your Required Minimum Distribution.
For example, suppose I turn 74 years of age in the year 2012, and as of December 31, 2011 the balance in my traditional IRA is $150,000.00. From the Uniform Lifetime Table, the divisor for a person who is age 74 is equal to 23.8. To obtain my year 2012 Required Minimum Distribution, I would divide $150,000.00 by 23.8, for a result of approximately $6,302.00. Thus in the year 2012 I would be required to withdraw $6,302.00 from my traditional IRA account and pay the income taxes on it. If I failed to take the distribution, I would be assessed a penalty excise tax of 50% of the amount not taken, in this instance $3,151, plus have to pay the income taxes when I did eventually take the distribution. Neglecting to take your required minimum distributions can be a costly error.
To learn what the JOINT AND LAST SURVIVOR TABLE is used for, you need to understand what the Uniform Lifetime Table is. The Uniform Lifetime Table is actually obtained from the combined life expectancy of the account participant plus that of a hypothetical beneficiary exactly age ten years younger than the plan participant.
The JOINT AND LAST SURVIVOR TABLE (and you have got to love the optimism of our Congresspeople here) is a table that can be used when the plan participant names as beneficiary his or her spouse who is greater than ten years younger than the participant. For an example of the JOINT AND SURVIVOR TABLE follow this link.
The divisors obtained from this table are more generous than the Uniform Lifetime Table. Let’s see how the use of the JOINT AND LAST SURVIVOR TABLE would have affected my example above. Again, suppose I am 74 in the year 2012, but that my spouse is named as my primary beneficiary and she is age 58. Looking at the table at the link above, we look across the top for age 74, and then go down to find my spouse’s age 58. Here, the divisor would be 28.1. Lets divide $150,000.00 by 28.1 for a Required Minimum Distribution of approximately $5,338.00. Thus, the use of the JOINT AND LAST SURVIVOR TABLE results is a lower Required Minimum Distribution. This table is more generous because it is assumed that because the beneficiary spouse has a much longer life expectancy the account should last for a longer time. Reducing the amount required to be taken from the account will accomplish this goal.
Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm. The rules regarding retirement accounts do change, are highly fact specific, and errors can be extremely costly. Before relying on any information given on this site, please contact a legal professional to discuss your particular situation.
Oh, and the IRS would like me to let you know that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.