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IRA
Distributions |
You
must begin taking minimum annual distributions from your IRAs,
401(k)s, and other individual accounts in an employer-sponsored
defined contribution plan (such as a profit-sharing plan) when
you reach a certain age. For most people, the required beginning
date for payouts is April 1 following the year in which they
turn age 70-1/2.
The IRS has just simplified and liberalized the rules that determine
the minimum annual distribution that must be withdrawn from
these types of retirement accounts. In general, you will have
to withdraw less each year under the revised rules than you
did under pre-existing IRS guidance. For those looking to withdraw
the rock-bottom minimum from their retirement plan accounts,
the new rules will result in a lower tax bill, a longer-lived
tax shelter for the family, and potentially larger payouts for
the owner’s beneficiaries.
There are three major simplifications and liberalizations you
should be aware of:
Simplified payout rules mean smaller distributions for most
people.
Under the new IRS rules, one simple table is used by virtually
all people to calculate the minimum annual distribution from
IRAs and other individual accounts in an employer-sponsored
defined contribution plan. (The one exception is where a spouse
is more than ten years younger than the employee or IRA owner,
in which case a "joint and survivor" table is used
to figure minimum payouts.) Under the prior rules, the minimum
annual distribution depended on a host of complex factors.
The new, simplified table means smaller required distributions
for most people. If you are already receiving required distributions
(or are about to start), please call your Rome Associaets contact
to discuss how much lower they would be under the new rules.
If you want to withdraw the absolute minimum from your IRA,
you will have to tell your trustee or fiduciary to make smaller
payments to you from the account.
New rules for post-death payouts.
The balance remaining in a retirement account such as an IRA
after its owner dies must be paid out within a certain period
of time. These post-death payout rules also have been simplified
and liberalized as follows:
If a retirement account has a designated beneficiary, the account
balance may be paid out over the beneficiary’s remaining
life expectancy. In general, a designated beneficiary must be
an individual, such as your child and cannot be an institution
or your estate.
If the retirement account does not have a designated beneficiary
and the account owner dies after his required beginning date,
the account balance may be paid out over the remaining life
expectancy of the account owner, determined just before he died.
If the account does not have a designated beneficiary and the
account owner dies before his required beginning date, the account
balance must be paid out within 5 years after the owner’s
death.
These rules replace an incredibly complex labyrinth of rules
where post-death payouts depended on the method chosen by the
account owner.
When designated beneficiary must be named.
Under the revised rules, the designated beneficiary of a retirement
account is determined as of the end of the year following the
year of the account owner’s death, allowing you to change
beneficiaries easily.
February 15, 2001
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