A Publication of WTVP

An Individual Retirement Account (IRA) can make saving and investing for retirement a whole lot easier. IRA account owners can contribute up to $2,000 per year tax deferred before they retire. Funds in the account may be withdrawn as early as age 59 1/2 (at the latest by April 1 of the year after you turn 70 1/2) to avoid additional taxes or penalties—at which time of withdrawal they become subject to federal income taxes.

New Regulations

The IRS announced January 12 a number of proposed regulations changing the way in which yearly Required Minimum Distribution (RMD) amounts from retirement and IRA accounts are calculated. The new regulations, which help both account owners and their beneficiaries, are scheduled to take effect for calendar years beginning on or after January 1, 2002. However, owners and beneficiaries can choose to follow the new rules when determining their RMDs for calendar year 2001—even if their RMDs have already begun.

A Simplified Process

The proposed regulations use a uniform lifetime distribution period which, generally, doesn’t vary with the age of your beneficiary, and a single easy-to-use table automatically calculates yearly RMDs. In most cases, this results in smaller RMDs than under the old rules, which can help stretch out your IRA for a greater number of years, reduce your federal tax bill, and allow more of your retirement assets to be passed on to your beneficiaries.

Under the proposed regulations, every IRA owner’s RMD will be calculated using a table that assumes the IRA owner has a beneficiary who is 10 years younger. The only exception being if your sole beneficiary is your spouse and your spouse is more than 10 years younger—in which case you have the option of using the regular joint life expectancy table. (If more than one beneficiary is named, you must use the new RMD table during your lifetime).

More Flexible Distributions

The proposed regulations allow IRA account owners over the age of 70 to change their beneficiaries as often as they want, without increasing the RMD. Such changes can even be made "after death"—in that a designated beneficiary need not be determined until December 31 of the year following the owner’s death.

In cases where an account names two or more beneficiaries, the new rules allow an inherited IRA to be split into separate accounts. Each beneficiary then uses his or her own life expectancy to calculate their own RMD. But, if a beneficiary isn’t chosen by the end of the year following the owner’s death, all of the money in the account must be withdrawn within five years. IBI