Tax-deferred plans, such as the BERS Tax Deferred Annuity Program, offer members the opportunity to save additional funds for retirement.  Since these programs are designed primarily to supplement the member’s retirement income, any amounts accrued should be used in retirement, and not deferred indefinitely.  Therefore, the IRS established laws that require members to be paid distributions from their TDA accounts by a specified time. These laws are commonly referred to as “Required Minimum Distribution Rules.”

The Rules

The law says that members must begin receiving distributions by April 1 following the later of the calendar year in which the member: 

v      Attains age 70½ or,

v      Retires (or leaves employment).

Subsequent distributions must be made annually by December 31 of each year.  

Calculating the Required Minimum Distribution

If you are between the ages of 70½ and 75,  your RMD amount is determined by dividing your account balance as of the end of the previous year (minus your December 31, 1986 adjusted balance, if any) by a life expectancy factor provided by the IRS. 

The IRS allows the December 31, 1986 balance to be “grandfathered” (i.e. given special treatment) prior to attainment of age 75. This grandfathered balance is reduced (adjusted) by withdrawals made in excess of the RMD amount in previous years.  When you reach age 75, the grandfathering is eliminated. As a result, your total account balance as of the end of the prior year is divided by the appropriate life expectancy factor. 

If you are still working at age 75, you must take a distribution of your December 31, 1986 balance, if any, by December 31 of the year you attain age 75 (and each subsequent year), regardless of your employment status. 

Penalties 

Failure to comply with the RMD rules may result in a 50% excise tax on the difference between the RMD amount and the actual amount distributed.  

Retiree Information

If you are retired and attained age 70½ in calendar year 2005 and you have not completed the appropriate RMD forms, please contact BERS for the necessary distribution and beneficiary forms. Please visit the IRS website for further information.

Distribution Options

BERS offers several distribution options.  You may choose the option that best suits your financial needs as well as complying with minimum distribution requirements. The following are the choices available: 

v      You may make annual withdrawals of an amount at least equal to the RMD amount. BERS can calculate the required amount each year for you;  or

v      You may elect an annuity settlement of your entire account balance; or

v      You may elect a single sum distribution of your entire account balance.

 

If the member is deceased, it is important that BERS be contacted, as a distribution may still be required to the member’s beneficiary. Beneficiaries are responsible for their required minimum distributions.

Uniform Distribution Table

This information is general in nature and should not be considered legal or tax advice. For advice on how these rules apply to your specific situation, we suggest you contact your own accountant or legal or tax counsel.

If you have any questions or need additional information or forms, please call the BERS TDA Unit at 718-935-5400 (or 800-843-5575 outside of New York State). Please visit the IRS website for further information.