Question

Annette Robinson is a sixty-three-year-old recent widow. Annette is attempting to do some tax and investment planning pertaining to her late husband’s traditional IRA account. She is seeking your advice as to the best course of action. She has informed you that her husband was sixty-nine at the time of his death and had not started taking a RMD.

a.What are the three distribution methods available to Annette?

b.Which method should she choose to maximize tax deferral? Based on the appropriate life expectancy table, how much will her first required distribution be? When will this distribution happen?

c.Which method should she choose to maximize the distribution? Based on the appropriate life expectancy table, how much will her first required distribution be? When would this distribution happen?

d.Which alternative would not have been available had her husband begun his required distributions?

e.If Annette had been younger than age fifty-nine, which alternative would have allowed her to take distributions without incurring a tax penalty?

Answer 1

(a) Three distribution methods available to Annette are:

1. Mass distribution (also known as intensive distribution): When products are destined for a mass market, the marketer will seek out intermediaries that appeal to a broad market base. For example, snack foods and drinks are sold via a wide variety of outlets including supermarkets, convenience stores, vending machines, cafeterias and others. The choice of distribution outlet is skewed towards those than can deliver mass markets in a cost efficient manner.

2. Selective distribution: A manufacturer may choose to restrict the number of outlets handling a product. For example, a manufacturer of premium electrical goods may choose to deal with department stores and independent outlets that can provide added value service level required to support the product. Dr Scholl orthopedic sandals, for example, only sell their product through pharmacies because this type of intermediary supports the desired therapeutic positioning of the product. Some of the prestige brands of cosmetics and skincare, such as Estee Lauder, Jurlique and Clinique, insist that sales staff are trained to use the product range. The manufacturer will only allow trained clinicians to sell their products.

3. Exclusive distribution: In an exclusive distribution approach, a manufacturer chooses to deal with one intermediary or one type of intermediary. The advantage of an exclusive approach is that the manufacturer retains greater control over the distribution process. In exclusive arrangements, the distributor is expected to work closely with the manufacturer and add value to the product through service level, after sales care or client support services. Another definition of exclusive arrangement is an agreement between a supplier and a retailer granting the retailer exclusive rights within a specific geographic area to carry the supplier's product,

(b). 2nd method should she choose to maximize tax deferral.

(c). 3rd method should she choose to maximize the distribution.

(d). 1st method would not have been available had her husband begun his required distributions.

(e). If Annette had been younger than age fifty-nine, first alternative would have allowed her to take distributions without incurring a tax penalty.