Federal law requires that after you reach age 70 1/2, you must begin withdrawing a minimum amount from your retirement?accou...Read more
IRS Releases Final Rules for Retirement Account Distributions
- May 9th, 2002
The Internal Revenue Service (IRS) has issued final regulations that greatly simplify the calculations for making minimum distributions from retirement plans like IRAs. 67 Federal Register 18834-18835, 18987-19028 (17 Apr 2002)
Congress created the rules for retirement plan funds like IRAs and 401(k)s to encourage saving for retirement and to allow retirement assets to build up tax-free during the plan owner's working years. However, the government doesn't want people to avoid paying taxes on these investments forever, so Congress created what are known as the minimum distribution rules. Taxpayers must begin withdrawing at least a minimum amount from their tax-deferred retirement plans each year, beginning on the April 1 after they reach age 70 . If they don't, they pay a whopping 50 percent excise tax on the amount that should have been distributed but was not.
As explained in our section on Retirement Planning, the old rules governing minimum distributions from retirement plans were complicated and required taxpayers to make a number of often difficult choices. Last year, new rules were proposed that greatly simplified things. (See IRS Simplifies Minimum Distributions From Retirement Accounts) In 2001, taxpayers had the option of using the old rules or the new proposed ones.
Now, final rules on minimum distributions have been issued and they must be followed starting in 2002. The final rules are similar but not identical to the proposed ones. Under both the proposed and final rules, most taxpayers can now consult one simple chart to determine their required distributions. (One of the difficult choices the old rules required was which of several life expectancy tables to use.) The chart in the final rules is somewhat different from that presented in the proposed rules. The new adjustments reduce the minimum distributions most taxpayers must make, thus allowing them to accumulate even more money in their retirement accounts, tax-deferred.
In another significant change from the proposed rules, the date for determining a designated beneficiary is now September 30 of the year following the year of the employee''s death. Under the proposed rules, the date was December 31 of the year following the year of an employee''s death.
For the full text of the final rules, go to: http://www.access.gpo.gov/su_docs/fedreg/a020417c.html and scroll down to Internal Revenue Service and Rules.
Last Modified: 05/09/2002