After a year-long debate, the IRS has approved most of the tax regulations it proposed in January 2001, including an extension in life expectancy tables. The updated tables will lower the minimum required distribution withdrawal amount from tax-deferred retirement accounts by adding a little more than a year to the life of a 75-year old. However, the nominal extension (the tables have not been adjusted for more than 20 years) has some observers asking if it really matters.
“With all of the advancements in technology and how much longer people are living, I was surprised we only earned a year,” says Ed Slott, CPA and author of Ed Slott’s IRA Advisor. It’s not a big change, he says, but neither were the income tax rebates the government handed out last year.
“Most of the changes were made to make things easier,” he says. “I think planners will be happy with them as they sink in.”
Even though the new regulations do not go into effect until next year, taxpayers have the option of applying them to their 2002 distributions. Slott suggests advising affected clients to use the new rules. “Saving clients a little bit of money is still saving money,” he says.
Other new regulations include:
- Clarifying rules related to separate accounts with different beneficiaries.
- Advancing the deadline for determining a designated beneficiary from December 31 to September 30 of the year after a plan participant’s year of death, making it easier to determine the initial distribution that must be made by the end of that year.
- Requiring IRA trustees to report the RMD amount to the IRA owner, or to calculate it for the owners on request, but not report the RMD amount to the IRS. The first report will be due January 31, 2003, alerting IRA owners to the distributions they must take for 2003. Starting in 2004, trustees will identify to the IRS each IRA for which a lifetime minimum distribution is required for the year. At this time, the IRS will not require these reports for beneficiaries’ IRAs.
Always be sure to let your clients know of the changes right away, adds Slott. “Anytime you get a chance to communicate with your clients, take it. It will help strengthen your relationship.”
But keeping on top of all the new and continually changing regulations isn’t always easy. To help weed through all the legal mumbo-jumbo, the folks at The Phoenix Companies, Inc., in Hartford, Connecticut, have created a new tax law micro-site for advisors.
The site, www.phoenixwm.com/taxlaw, presents reader-friendly information to help you answer clients’ questions. “We closely monitor what is going on in Congress and we knew we needed to get that information out to the field,” says Richard C. Martin, VP of advanced marketing at Phoenix. By knowing regulatory changes and tax law modifications immediately, Martin says, planners will increase credibility with their clients. “You might even save them from making a potentially large mistake.”