More Clarity And Simplicity In New Required Minimum Distribution Rules
New required minimum distribution regulations were finalized recently by the Treasury Department. The basic methods that were proposed in 2001 were maintained, but with many clarifications and even further simplifications.
Among the most significant additions are new life expectancy tables, information on the reporting requirements for IRA custodians, and answers to several questions pertaining to distributions after the death of the participant.
The final rules generally take effect starting Jan. 1, 2003. For 2002, participants can use either the 2001 proposed regs or the 2002 final regs. The distribution amounts will generally be slightly lower under the final rules.
Generally, the minimum distribution requirements apply to qualified plans, IRAs, Section 403(b) annuities and certain Section 457 plans.
The following are some of the high points of the new regulations:
–Single and joint life expectancies are longer. For instance, under the uniform table that governs most lifetime distributions, the distribution period for participants at age 70 is increased from 26.2 to 27.4 years. The age 70 single life factor increased from 16.0 to 17.0 and the joint life expectancy for two individuals who are both age 70 increased from 20.6 to 21.8.
These changes are the result of a directive by Congress in the EGTRRA 2001 that the tables used for Required Minimum Distribution calculations be amended to take into account the longer life expectancies indicated by the most recent census figures.
–The 2001 regs indicated a change of position by stating that a surviving spouse had to be the sole beneficiary of an IRA in order to treat the IRA as his or her own. Since this contradicted a number of private letter rulings, some commentators speculated that it was a mistake.
But the new regs make it clear that the Treasury meant what it said. The regs say that the surviving spouse must “have an unlimited right to withdraw amounts from the IRA” and that if a trust is named as beneficiary, this requirement is not met, even if the spouse is sole beneficiary of the trust.