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NEW IRA AND RETIREMENT DISTRIBUTIONS SIMPLIFIED

The IRS has just released proposed regulations dealing with distributions from IRAs and Retirement Plans. The proposed regulations, while proposed, are effective for year 2001. Previous regulations on which we all relied were never finalized. And for those of you who found the old rules, complex and boring, the new rules are like a sweet rose from heaven.

Remember that by the Required Beginning Date (April 1 of the calendar year after the calendar year in which a person turns 70½), a designated beneficiary needed to be determined and once that were done, you could not change the ultimate method for distribution once the Account Owner died. Well that has changed. Now you need not even have a person as a designated beneficiary at the time of your Required Beginning Date. Moreover, you can now change your mind during your life time and even after you die. The distributions amounts will not change. This was unheard of previously.

Lets just see a little about the way it can now work. Say a person is 72 and has a spouse who is 68. Also say the IRA is worth $200,000 as of December 31 of the previous year. The Required Minimum Distribution for the year would have been $ 9,615.38. Now the spouse is treated as being automatically 10 years younger (unless the spouse is more than 10 years younger in which case the tables can be used) and the distribution now will be $8,196.72, a difference of almost $1,500 for the year which may continue to grow tax free. The name of the game is to defer as long as possible the need to take the money out and pay taxes. By leaving the money in the account as opposed to be being required to take it out, means that the amount remaining in the account continues to build and grown tax free until distributed. Compounding will produce a larger and larger build up of the IRA account.

Here's is just how simple distributions will be in the future:

Age of Account
Owner Divisor
70
26.2
71
25.3
72
24.4
73
23.5
74
22.7
75
21.8
76
20.9
77
20.1
78
19.2
79
18.2
80
17.6
81
16.8
82
16.0
83
15.3
84
14.5
85
13.8
86
13.1
87
12.4
88
11.8
89
11.1
90
10.5

The only variation from this schedule will be in a situation where a spouse is designated as the beneficiary and that spouse is more than 10 years younger. In that case, resort to another table will be necessary.

In later postings I will be discussing tax savings strategies. Consider having the most recent copy of our newsletter mailed to you and others.