• Question - Are there new rules for calculating required minimum distributions from qualified retirement plans and individual retirement arrangements (IRAs)?

  Answer - Yes. The new 2001 proposed regulations, which were published in the Federal Register on January 19, 2001, provide the rules that can be used to calculate minimum required distributions under qualified plans and IRAs for calendar years beginning on or after January 1, 2001. In particular, the new 2001 regulations significantly simplify the required distribution rules applicable to defined contribution and other individual account plans. The rules for calculating required minimum distributions from qualified plans under section 401(a)(9) of the Internal Revenue Code and IRAs under sections 408(a)(6) and (b)(3) were formerly found in the old 1987 proposed regulations. To calculate minimum required distributions for the 2001 calendar year, taxpayers may use either the new 2001 regulations or the old 1987 regulations.

• Question - Where can I find the new 2001 regulations?

  Answer - The new 2001 regulations can be found on page 865 of Bulletin No. 2001-11 (March 12, 2001). For further explanation of the new 2001 regulations, also see Announcement 2001-23, 2001-10 I.R.B. 791, published on March 5, 2001, which contains supplements to Publication 575, Pension and Annuity Income, and Publication 590, Individual Retirement Arrangements (IRAs).

§ 408 INDIVIDUAL RETIREMENT ACCOUNTS

(a) INDIVIDUAL RETIREMENT ACCOUNT

For purposes of this section, the term "individual retirement account" means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:

[AMENDED. Pub. L. 107-16, Sections 601(b) and 641(e), amended subsection (a)(1), effective for taxable years beginning after December 31, 2001 (Section 601(b)) and for distributions after December 31, 2001 (Section 641(e)). For the wording of subsection (a)(1) after that date, see Background/Effective Dates below. --]

(1) Except in the case of a rollover contribution described in subsection (d)(3) in section 402(c), 403(a)(4), or 403(b)(8), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year in excess of $2,000 on behalf of any individual.

(2) The trustee is a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.

(3) No part of the trust funds will be invested in life insurance contracts.

(4) The interest of an individual in the balance in his account is nonforfeitable.

(5) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

(6) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained.

(b) INDIVIDUAL RETIREMENT ANNUITY

For purposes of this section, the term "individual retirement annuity" means an annuity contract, or an endowment contract (as determined under regulations prescribed by the Secretary), issued by an insurance company which meets the following requirements:

(1) The contract is not transferable by the owner.

(2) Under the contract--

(A) the premiums are not fixed, 

[AMENDED. Pub. L. 107-16, Section 601(b), amended subsection (b)(2)(B), effective for taxable years beginning after December 31, 2001. For the wording of subsection (b)(2)(B) after that date, see Background/Effective Dates below. --]

(B) the annual premium on behalf of any individual will not exceed $2,000, and

(C) any refund of premiums will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits.

(3) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of the owner.

(4) The entire interest of the owner is nonforfeitable.

§401(a)(9)

(a) REQUIREMENTS FOR QUALIFICATION

A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section--

(9) REQUIRED DISTRIBUTIONS  (401a9)

(A) IN GENERAL - A trust shall not constitute a qualified trust under this subsection unless the plan provides that the entire interest of each employee--

(i) will be distributed to such employee not later than the required beginning date, or

(ii) will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).

(B) REQUIRED DISTRIBUTION WHERE EMPLOYEE DIES BEFORE ENTIRE INTEREST IS DISTRIBUTED (i) WHERE DISTRIBUTIONS HAVE BEGUN UNDER SUBPARAGRAPH (A)(ii) - A trust shall not constitute a qualified trust under this section unless the plan provides that if--

(I) the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii), and

(II) the employee dies before his entire interest has been distributed to him, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death.

(ii) 5-YEAR RULE FOR OTHER CASES

A trust shall not constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii), the entire interest of the employee will be distributed within 5 years after the death of such employee.

(iii) EXCEPTION TO 5-YEAR RULE FOR CERTAIN AMOUNTS PAYABLE

OVER LIFE OF BENEFICIARY

If--

(I) any portion of the employee's interest is payable to (or for the benefit of) a designated beneficiary,

(II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and 

(III) such distributions begin not later than 1 year after the date of the employee's death or such later date as the Secretary may by regulations prescribe, for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on which such distributions begin.

(iv) SPECIAL RULE FOR SURVIVING SPOUSE OF EMPLOYEE - If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee--

(I) the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained age 70 1/2 , and

(II) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee.

 

(C) REQUIRED BEGINNING DATE - For purposes of this paragraph--

(i) IN GENERAL - The term "required beginning date" means April 1 of the calendar year following the later of--

(I) the calendar year in which the employee attains age 70 1/2, or

(II) the calendar year in which the employee retires.

(ii) EXCEPTION - Subclause (II) of clause (i) shall not apply--

(I) except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 701/2, or

(II) for purposes of section 408 (a)(6) or (b)(3). 

(iii) ACTUARIAL ADJUSTMENT - In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 70 1/2, the employee's accrued benefit shall be actuarially increased to take into account the period after age 70 1/2 in which the employee was not receiving any benefits under the plan.

(iv) EXCEPTION FOR GOVERNMENTAL AND CHURCH PLANS - Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term 'church plan' means a plan maintained by a church for church employees, and the term 'church' means any church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).

(D) LIFE EXPECTANCY - For purposes of this paragraph, the life expectancy of an employee and the employee's spouse (other than in the case of a life annuity) may be redetermined but not more frequently than annually.

(E) DESIGNATED BENEFICIARY - For purposes of this paragraph, the term "designated beneficiary" means any individual designated as a beneficiary by the employee.

(F) TREATMENT OF PAYMENTS TO CHILDREN -  Under regulations prescribed by the Secretary, for purposes of this paragraph, any amount paid to a child shall be treated as if it had been paid to the surviving spouse if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under regulations).

(G) TREATMENT OF INCIDENTAL DEATH BENEFIT DISTRIBUTIONS - For purposes of this title, any distribution required under the incidental death benefit requirements of this subsection shall be treated as a distribution required under this paragraph.