The annual Solo 401k required minimum distribution (RMD) is calculated by dividing the Solo 401k account balance by the applicable distribution period pursuant to Treas. Reg. 1.401(a)(9)-5, Q&A 1.
Solo 401k Account Balance
For Solo 401k plan or Individual K, the account balance is the balance as of the last valuation date (typically December 31) in the calendar year immediately preceding a year for which an RMD is due. This is called the Solo 401k valuation year. This valuation amount is then adjusted by adding to the balance any contributions allocated to the Solo 401k plan balance after the valuation date, but during the valuation year. You must then subsequently subtract any distributions made in the valuation year that may have occurred after the Solo 401k plan valuation date.
Solo 401k plans are also allowed to exclude contributions for the valuation year not actually made in the valuation year in accordance with Treas. Reg. 1.401(a)(9)-5, Q&A 3(b). And if the first year’s RMD is taken between January 1 and April 1 of the year following the first distribution year (the second distribution year), the final RMD regulations do not require that the first year’s RMD be subtracted from the December 31 balance when determining the RMD for the second distribution year.
Applicable Solo 401k Distribution Period
During a Solo 401k plan trustee’s/participant’s lifetime, the RMD regulations provide that the distribution period for nearly all individuals of the same age (with one exception outlined later in this section) is determined using the Uniform Lifetime Table in Treas. Reg. 1.401(a)(9)-9, Q&A 2. The distribution period based on the Uniform Lifetime Table is equal to the joint life expectancy of an individual and a beneficiary exactly 10 years younger, regardless of whether a beneficiary is actually named. The result of using the Uniform Lifetime Table is a longer lifetime distribution period for most Solo 401k individuals and their beneficiaries, thereby reducing the amount a participant must take annually from his or her Solo 401k.
|ILLUSTRATION: Bill is retired and turns 71 in 2011, the calendar year in which he turns 70 1/2 . Bill’s RMD for 2011 is calculated by dividing his December 31, 2010, account balance of $175,000 by the life expectancy divisor from the Uniform Lifetime Table for a 71 year old, which is 26.5. Even though Bill has not named a beneficiary for his Solo 401k plan balance, his RMD is determined using a uniform distribution period equal to the joint life expectancy of an individual and a hypothetical beneficiary exactly 10 years younger. Bill’s RMD for 2011 equals $6,603.77 ($175,000 / 26.5 = $6,603.77).|
Exception to Uniform Lifetime Table: Spouse Beneficiary More Than 10 Years Younger
Under the Solo 401k or Individual K RMD regulations, an exception to applying the Uniform Lifetime Table exists if a spouse, who is more than 10 years younger than the Solo 401k plan trustee/participant, is the sole beneficiary. In this event, to determine the correct distribution amount, the Solo 401k plan trustee/participant should use the longer distribution period as determined by the actual joint life expectancy of the two individuals instead of the life expectancy divisor from the Uniform Lifetime Table pursuant to Treas. Reg. 1.401(a)(9)-5, Q&A 4(b)(1). What’s more, the spouse is considered the sole designated beneficiary if he or she is the sole beneficiary at all times during the Solo 401k RMD distribution year. The Solo 401k regulations provide, however, that if there is a change in marital status during the year resulting from death or divorce, the change in beneficiary for ascertaining the distribution period takes effect in the year following the year of death or divorce in accordance with Treas. Reg. 1.401(a)(9)-5, Q&A 4(b)(2).