Since 1987, Internal Revenue Code (IRC) Section 401(a)(9) required that a taxpayer must take from their qualified retirement plans and IRA’s minimum distributions as of April 1 of the calendar year following the later of the calendar year in which the individual attains age 70 & #733; or the calendar year in which the employee retires.
The IRS has recently released proposed regulations under IRC Section 401(a)(9) which would significantly revise and simplify the rules for calculating minimum distributions from qualified plans, Section 403(b) plans, Section 457 and IRA’s.
The proposed regulations are likely to reduce the minimum payment for individuals in the following ways:
– In most cases an individual’s minimum distribution will be based upon a uniform table.
This table is used to determine the minimum required distribution regardless of the beneficiary designation. Because the table assumes everyone has a beneficiary who is 10 years younger than they are, more taxpayers’ minimum distributions will be less than they were in the past.
– Under prior regulations, married individuals were required to choose between using the calculation method or not using that method.
Recalculation will now be automatic. In addition, even after the death of a participant, the participant’s distribution period is determined using government life tables rather than the actual life span of the participant.
Both of these changes will in general lengthen the allowable distribution period.
– Individuals will be able to change their beneficiary as late as the end of the year following the year of the taxpayer’s death without increasing the distribution.
– If death occurs after the required beginning date, the minimum distribution period is generally based on the remaining life expectancy of the designated beneficiary as of the end of the year following the year in which the participant died.
The proposed regulations are effective for the calendar year beginning on or after Jan. 1, 2002. However, minimum distributions for 2001 may be based on either the 1987 proposed regulations or the 2001 proposed regulations.
Just is the pension manager at Grice, Lund & Tarkington, LLP, CPAs.
