Certified Plan Sponsor Professional (CPSP) Practice Exam

What factors are necessary to calculate a required minimum distribution (RMD)?

1. The age of the participant and the plan fees

2. The life expectancy factor and the participant's job history

3. The account balance and the age of the plan sponsor

4. The age of the participant, life expectancy factor, and account value from the prior year

The correct answer is: The age of the participant, life expectancy factor, and account value from the prior year

To calculate a required minimum distribution (RMD), it is essential to consider specific components, which are included in the correct answer. The age of the participant is critical because it determines the applicable life expectancy factor, which is derived from IRS tables. This life expectancy factor varies based on the age of the individual, reflecting the average longevity and expected duration of withdrawals. Additionally, the account value from the prior year is a crucial element in the RMD calculation. The RMD is computed using the balance of the retirement account as of December 31 of the previous year, ensuring that the distribution amount is proportionate to the annual balance of the retirement savings. By combining the participant's age, the life expectancy factor, and the prior year's account value, one can accurately ascertain the amount that must be withdrawn to adhere to IRS regulations. This method aims to facilitate the gradual spending down of retirement assets over the participant's lifetime. The other options lack the necessary combinations of factors required for an accurate RMD calculation, thus reinforcing why the selected response is correct.