IRA Required Minimum Distributions

IRA - Minimum Distributions

Minimum Required Distributions and Beneficiary

New IRS rules will make it easier to understand and calculate Required Minimum Distributions (RMD). The new rules are applicable to all IRA owners and qualified plan participants.

The rules must be used to calculate Required Minimum Distributions required for 2003 and for subsequent calendar years. However, the rules also may be used to determine Required Minimum Distributions required for 2002. Alternatively, the 1987 or the 2001 Proposed Rules may be used for calculating 2002 Required Minimum Distributions.

You will use the Uniform Distribution table in ALL situations EXCEPT where the spouse is the sole primary beneficiary and more than 10 years younger than the owner. In that situation, you will use the joint life and last survivor table. The changes let you:

keep more of your retirement assets working on a tax-deferred basis;
have the freedom to change beneficiaries after age 70 ½ and
eliminate the often complex tables and formulas needed to calculate your minimum distributions.

IRS Changes Required Minimum Distribution Rules

These proposed regulations were changed, then made final 4/17/02. Watch here for the new analysis of the final regulations. One change is a new Uniform Lifetime Table (see below).

The IRS has released new proposed regulations for determining the required minimum distributions. In this discussion the term "employee" not only means employees, but also includes an IRA owner. These regulations apply to qualified retirement plans, IRAs, Roth IRAs, 403(b) annuity contracts, and §457(d) deferred compensation plans.

These new proposed regulations are effective for determining required minimum distributions for calendar years beginning on or after January 1, 2002. The required minimum distributions for calendar year 2001 can be determined using the former regulations or these proposed regulations.

The rules are simplified by:

1) Providing a simple, uniform table that all employees can use to determine the minimum distribution required during their lifetime. This means employees would:

a. No longer need to determine their beneficiary by their required beginning date,

b. No longer need to decide whether or not to recalculate their life expectancy each year in determining required minimum distributions, and

c. No longer need to satisfy a separate incidental death benefit rule.

2) Permitting the required minimum distribution during the employee's lifetime to be calculated without regard to the beneficiary's age. This calculation uses the same table as the MDIB table in the earlier proposed regulations. An employee can use the age of a spousal beneficiary to determine the required minimum distributions when the spouse is more than 10 years younger than the employee.

3) Permitting the beneficiary to be determined as late as the end of the year following the year of the employee's death. This allows:

a. The employee to change designated beneficiaries after the required beginning date without increasing the required minimum distribution.

b. The beneficiary to be changed after the employee's death, such as by one or more beneficiaries disclaiming or being cashed out.

c. Any beneficiary eliminated by distribution of the benefit or through disclaimer (or otherwise) during the period between the employee's death and the end of the year following the year of death is disregarded in determining the employee's designated beneficiary for purposes of calculating required minimum distributions.

d. This provision means any beneficiaries that exist on the date of the employee's death will be disregarded if they are no longer beneficiaries on the December 31^st of the year following the year of death.

4) Permitting the calculation of post-death minimum distributions to take into account an employee's remaining life expectancy at the time of death.

a. The required minimum distribution after an employee's death AND AFTER the employee/s required beginning date is based on the remaining life expectancy of the designated beneficiary. If there is not a designated beneficiary, then the life expectancy of the employee as of his/her birthday in the calendar year of his/her death is used as the divisor, with a reduction by one for each subsequent calendar year.

b. The required minimum distribution after an employee's death AND BEFORE the employee's required beginning date is based on the life expectancy of the designated beneficiary. If there is not a designated beneficiary, then the account must be distributed by the end of the 5^th calendar year after the year of the employee's death.

A trust can be a beneficiary provided that certain requirements are met. One of the requirements is that documentation of the underlying beneficiaries of the trust be provided timely to the plan administrator.

A surviving spouse can elect to treat an inherited IRA as the spouse's own IRA. If the surviving spouse contributes to the IRA or does not take the required minimum distribution for a year as a beneficiary of the IRA and the surviving spouse is the sole beneficiary of the account, then this election will be deemed to have been made. This requirement is not satisfied if a trust is named as beneficiary of the IRA, even if the surviving spouse is the sole beneficiary of the trust. Furthermore, this deemed election can only be made after the distribution of the required minimum amount for the account, if any, for the year of the individual's death.

Trustees of IRAs will be required to report the amount of the required minimum distribution from the IRA to the IRA owner or beneficiary and to the IRS at the time and in the manner as provided for in the IRS forms and instructions. This will make it easier for taxpayers to be aware of their distribution requirements and amounts, even though taxpayers can choose which IRA account to take the distribution from.

The IRS will not issue letter rulings on the proposed regulations until they are published as final regulations.

Minimum Distribution Table

Age	Applicable Divisor
70	27.4
71	26.5
72	25.6
73	24.7
74	23.8
75	22.9
76	22.0
77	21.2
78	20.3
79	19.5
80	18.7
81	17.9
82	17.1
83	16.3
84	15.5
85	14.8
86	14.1
87	13.4
88	12.7
89	12.0
90	11.4
91	10.8
92	10.2
93	9.6
94	9.1
95	8.6
96	8.1
97	7.6
98	7.1
99	6.7
100	6.3
101	5.9
102	5.5
103	5.2
104	4.9
105	4.5
106	4.2
107	3.9
108	3.7
109	3.4
110	3.1
111	2.9
112	2.6
113	2.4
114	2.1
115 and older	1.9