IRS allows one-time RMD-method change.

• Author: Kautter, David J.
• Position: Required minimum distributions

In Rev. Rul. 2002-62, the Service modified Notice 8925, Q&A-12, to allow taxpayers who chose a fixed annuitization or a fixed amortization method to calculate their substantially equal periodic payments, to change to the required minimum distribution (RMD) method, without incurring a penalty.

Generally, taxpayers pay a 10% penalty on withdrawals from an IRA or employer-sponsored individual account plan taken before reaching age 59 1/2, unless they take substantially equal periodic distributions over their life expectancy or a joint-life expectancy with the beneficiary. Those who chose annuitization or amortization (which requires a fixed annual withdrawal) have to pay a retroactive penalty on all distributions, if they wanted to reduce the amount received to keep their account from being dissipated.

Under the ruling, taxpayers can change to the RMD method without incurring that penalty. A taxpayer can compute the distribution every year based on the current account balance and life expectancy. Once taxpayers change to the RMD method, however, they must follow that method in all subsequent years. Any other change is treated as a modification under Sec. 72(t)(4), resulting in a penalty.

Rev. Rul. 2002-62 also (1) clarifies how a taxpayer can meet the permitted method that tracks the Sec. 401(a)(9) RMD rules, in light of the final regulations; (2) provides guidance on a...