- 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).
- Question - May an IRA owner use the new 2001 regulations for
calendar year 2001 distributions even if the IRA document contains the
rules of the old 1987 regulations?
Answer - Yes. As noted in Q&A-1 above, an IRA owner may,
but is not required to, use the new 2001 regulations for calculating
required distributions made for calendar years beginning on or after
January 1, 2001, irrespective of the language of the IRA document.
- Question - Should an IRA document be amended to reflect the
new 2001 regulations?
Answer - No. An IRA document should not be amended in
calendar year 2001, even if IRA owners are receiving distributions in
accordance with the new 2001 regulations.
- Question - May a qualified retirement plan use the rules in
the new 2001 regulations to calculate required minimum distributions
made for calendar years beginning on or after January 1, 2001?
Answer - A qualified retirement plan may follow the rules in
the new 2001 regulations to calculate minimum required distributions
made for calendar years beginning on or after January 1, 2001.
However, a qualified plan must be amended to add either the model
amendment set forth in Announcement
2001-18, 2001-10 I.R.B. 791 (March 5, 2001) or the model amendment
set forth in Announcement
2001-82, 2001-32 I.R.B. 123 (August 6, 2001) no later than the end
of its GUST remedial amendment period in order for the plan to make
required distributions under the new 2001 regulations during calendar
year 2001. The amendment need not be made to the plan for a
distribution to be made during 2001 under the new rules as long as the
amendment is made no later than the end of its GUST remedial amendment
period. Revenue
Procedure 2000-27, 2000-26 I.R.B. 272 extends the GUST remedial
amendment period for most plans until the end of the first plan year
beginning on or after January 1, 2001.
- Question - Could a retired employee or IRA owner, who
attained age 70 ½ in 2000 and who received his calendar year 2000
required distribution in calendar year 2001 (by April 1, 2001), have
calculated his 2000 required minimum distribution under the new 2001
regulations?
Answer - No. Taxpayers could not rely on the new 2001
regulations for the calculation of the required minimum distributions
for the 2000 calendar year. Therefore, for a calendar year 2000
required distribution, even if received during calendar 2001,
taxpayers can only rely on the old 1987 regulations. Failure to use
the old 1987 regulations may have resulted in a distribution smaller
than that required, and may result in the imposition of an excise tax.
The following questions and answers assume that the required
distributions are being calculated under the new 2001 regulations and
are being made from individual account plans.
- Question - What are the rules for calculating lifetime
minimum required distributions under the new 2001 regulations?
Answer - All taxpayers with account balances in either
defined contribution plans or individual retirement accounts (IRAs)
may calculate their lifetime distributions by using the Table for
Determining Applicable Divisor for Minimum Distribution Incidental
Benefits (MDIB TABLE) found on page 80 of Publication 590 (Individual
Retirement Arrangements). An individual must divide the applicable
account balance (which for an IRA is generally the IRA's account
balance as of the last day of the calendar year immediately preceding
the calendar year for which the required distribution is being made)
by the "applicable divisor" listed next to the employee's or
IRA owner's age as of the birthday during the year for which the
required distribution is being made.
Example - Taxpayer A owns an IRA. On Taxpayer A's birthday
in 2001, Taxpayer A reached age 77. As of the end of 2000, the value
of Taxpayer A's IRA is $201,000. Taxpayer A looks at the MDIB Table
and determines that the "applicable divisor" for a 77 year
old individual is 20.1. Taxpayer A divides $201,000 by 20.1 and
determines that the calendar year 2001 required minimum distribution
is $10,000, which must be distributed to Taxpayer A no later than
December 31, 2001.
- Question - Is there any alternative method of computing
lifetime minimum required distributions for married individuals?
Answer - Yes. If the sole designated beneficiary of a
married employee or IRA owner is a spouse who is more than 10 years
younger (using their attained ages as of their birthdays during the
distribution calendar year), lifetime required distributions are
computed by dividing the applicable account balance by the joint life
and last survivor expectancy table (Table II beginning on page 76 of
Publication 590). Use of Table II produces a smaller amount as a
required minimum distribution than use of the MDIB Table.
Example - Individual A, who owns an IRA, is married to
Individual B who is Individual A's sole designated beneficiary.
Individual A will be 75 on A's birthday in 2001 and Individual B will
be 55 on B's birthday in 2001. At the end of calendar year 2000,
Individual A's IRA had a value of $293,000. Individual A consults
Table II and determines that the applicable divisor for a 75 year old
with a 55 year old spouse is 29.3. Individual A divides $293,000 by
29.3 and determines that the calendar year 2001 required minimum
distribution is $10,000, which must be distributed to Individual A no
later than December 31, 2001. If Individual A had used the MDIB Table,
the divisor would have been 21.8 and the required minimum distribution
would have been $13,440.37.
- Question - If an employee or IRA owner has reached his or her
required beginning date, and has begun to receive distributions under
the rules provided in the old 1987 regulations prior to calendar year
2001, may required distributions for calendar years beginning with
2001 be calculated under the new 2001 regulations?
Answer - Yes. For an example, see Q&A-7 above.
- Question - Once required distributions to a 5-percent owner
begin on April 1 of the calendar year following the calendar year in
which the employee attains age 70 ½, can required distributions stop
if the employee ceases to own more than 5-percent of the employer
prior to the employee's retirement?
Answer - No.
- Question - How is the minimum required distribution
calculated in the year of death for an employee or an IRA owner?
Answer - If an employee or an IRA owner dies on or after the
required beginning date, the required distribution for the year of
death is calculated by using either (1) the MDIB Table discussed in
Q&A-7, or (2) if the alternative method described in Q&A-8 is
applicable, the joint life and last survivor expectancy table
mentioned in Q&A-8. If the MDIB Table is used, the applicable
account balance is divided by the divisor found in the MDIB Table
listed next to the employee's or IRA owner's age as of the birthday in
the year of death. If the joint life and last survivor expectancy
table is used, the applicable account balance is divided by the
divisor listed next to the ages of the employee or IRA owner and the
spouse as of their birthdays in the year of death. See Q&As-13
through 15 for the rules on how to calculate the required
distributions in years after the year of death.
If an employee or an IRA owner dies before the required beginning
date, there is no required distribution for the year of death.
- Question - May a surviving spouse elect to treat the entire
IRA of a decedent as the surviving spouse's own?
Answer - After the required distribution for the year of
death (if any) is distributed, the surviving spouse is entitled to
treat the entire IRA of a decedent as the surviving spouse's own if
the surviving spouse is the sole beneficiary of the IRA and has an
unlimited right to withdraw the assets from the IRA. This
requirement is not satisfied if a trust is named as beneficiary of the
IRA even if the spouse is the sole beneficiary of the trust.
- Question - How are post-death minimum required distributions
calculated in years after the year of death if an employee or an IRA
owner dies without a designated beneficiary?
Answer - If the employee or IRA owner dies prior to his or
her required beginning date without a designated beneficiary who is an
individual, distribution of the entire account balance must be made no
later than December 31 of the fifth calendar year which follows the
calendar year of his/her death. If the decedent dies without a
designated beneficiary who is an individual on or after the required
beginning date, the appropriate account balance is divided by the
distribution period which is the divisor listed next to the deceased's
age (as of his or her birthday in the year of death) in the single
life expectancy table (Table I found on page 75 of Publication 590)
reduced by one for each year that has elapsed since the year of death.
For special rules if a trust is named as a beneficiary, see Q&As-5
and 6 of section 1.401(a)(9)-4 of the new
2001 regulations.
- Question - What are the rules for calculating post-death
required distributions in years after the year of death if a retired
employee or IRA owner dies and has a designated beneficiary who is an
individual but is not the employee's or IRA owner's spouse?
Answer - Required distributions must be computed by dividing
the appropriate account balance by the divisor listed next to the
beneficiary's age (as of the beneficiary's birthday in the calendar
year following the calendar year of death of the participant or IRA
owner) found using Table I at page 75 of Publication 590 reduced by
one for each calendar year that has elapsed since the calendar year
following the calendar year of death. Distributions to a non-spouse
beneficiary must begin no later than December 31 of the calendar year
following the calendar year of the employee's or IRA owner's death.
See Q&A-7 of section 1.401(a)(9)-5 of the new 2001 regulations for
special rules when multiple beneficiaries exist.
- Question - What are the rules for calculating post-death
distributions in years after the year of death if an employee or IRA
owner dies either prior to or after attaining age 70½ and the
employee's or IRA owner's spouse is the sole designated beneficiary?
Answer - The appropriate account balance is divided by the
distribution period, which is the divisor listed next to the spouse's
age (as of the birthday in the year of distribution) in Table I on
page 75 of Publication
590. If an employee or IRA owner dies prior to the year in which
the employee or IRA owner would have attained age 70 ½, distributions
to the spouse need not begin until the year in which the employee or
IRA owner would have attained age 70 ½.
- Question - With respect to post-death distributions, when is
the determination made as to who is a designated beneficiary?
Answer - December 31 of the calendar year following the
calendar year of the employee's or IRA owner's death.
Example - Taxpayer A dies during calendar year 2000 at age
62. Taxpayer A designated Taxpayers B and C, his children, as the
beneficiaries of Taxpayer A's IRA. Taxpayers B and C remain the
beneficiaries as of December 31, 2001. Taxpayer B and Taxpayer C will
be considered designated beneficiaries of Taxpayer A's IRA as of
December 31, 2001.
- Question - If an employee or IRA owner died before 2001, can
minimum required distributions be calculated under the new 2001
regulations for years beginning with 2001?
Answer - Yes.
- Question - May an employee who receives a distribution from a
qualified retirement plan roll over into an IRA the difference between
a required distribution that is calculated under the old 1987
regulations and a required distribution that is calculated under the
new 2001 regulations?
Answer - Yes, as long as the amount otherwise meets the
definition of "eligible rollover distribution" found in Code
section 402(c)(4) and section 1.402(c)-2 of the Income Tax
Regulations, Question and Answer 3.
Example - During calendar year 2001, Employee A elects to
receive a single sum distribution in the amount of $100,000 from a
qualified retirement plan which distribution does not consist of any
after-tax employee contributions. A's 2001 required distribution
computed under the 1987 regulations is $10,000. After A receives the
required section 402(f) notice advising A of the direct rollover
option, at A's election, $90,000 is paid in a direct rollover to an
IRA in A's name and $10,000 is paid directly to A. A's required
distribution computed using the new 2001 proposed regulations is
$7,500. A may roll over an additional $2,500 into an IRA as long as
the rollover occurs within 60 days of the date on which A received the
$10,000 payment.
- Question - Must a plan withhold tax on, offer a direct
rollover option for, and provide the recipient with the explanation
described in Code section 402(f), with respect to the additional
eligible rollover amount ($2,500) in Q&A-18?
Answer - No.
- Question - Which model amendment should a qualified
retirement plan adopt if it begins to make required minimum
distributions for calendar year 2001 to some employees under the old
1987 regulations prior to the date on which the plan begins operating
in accordance with the new 2001 regulations?
Answer - The plan should adopt the model amendment provided
in Announcement
2001-82.
- Question - Must a plan administrator that timely adopts the
model amendment provided in Announcement 2001-82 take any corrective
action with respect to the portion of any distribution referenced in
Q&A-20 that is calculated under the old 1987 regulations and that
is in excess of the required minimum distribution calculated using the
new 2001 regulations?
Answer - If the entire required minimum distribution for an
employee is made before the time when the plan began to operate under
the new 2001 regulations for 2001 distributions, the plan sponsor need
not take any corrective action.
If the entire 2001 required distribution was not made prior to the
date that the plan begins to operate in accordance with the new 2001
proposed regulations, adjustments in the amount of required
distributions for 2001 must be made after the date the plan begins to
operate in accordance with the new 2001 proposed regulations.
Example - An employee has a required distribution for
calendar year 2001 calculated under the 1987 regulations of $10,000.
The employee elects a single sum distribution of $100,000 on May 31,
2001 and, as in Q&A-18, elects a direct rollover of $90,000 to an
IRA in the employee's name. The plan sponsor adopts the model
amendment found in Announcement 2001-82 within its GUST remedial
amendment period. The plan begins to operate in accordance with the
new 2001 proposed regulations effective July 1, 2001. Under the new
2001 regulations, the employee's 2001 required minimum distribution is
$8,000. The plan administrator need take no corrective action with
respect to the $2,000 difference received by the employee.
Example - Another employee has a required distribution for
calendar year 2001 calculated under the old 1987 proposed regulations
in the amount of $12,000. Pursuant to plan terms, the employee's
required distribution is being paid $1,000 per month during 2001. As
of June 30, 2001, the employee has received $6,000 in plan
distributions. The plan sponsor adopts the model amendment found in
Announcement 2001-82 within its GUST remedial amendment period. The
plan begins to operate in accordance with the new 2001 proposed
regulations effective July 1, 2001. Under the new 2001 regulations,
the employee's 2001 required minimum distribution is $9,000. The plan
must distribute $3,000 as a required minimum distribution for 2001,
and not $6,000, to the employee during the remainder of 2001.
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