IRS rulings clarify IRA distribution rules.

• Author: Whitney, E. Kenneth

Practitioners are encountering clients who have unexpected substantial deferred taxable income. Some of this is the result of increased lifetime earnings qualifying for deferment, but more of the surprising good fortune is coming from the present investment climate. Many retirement plans continue to grow even when the owners commence required withdrawals. This good news has a downside when the income-tax effect is considered by the ultimate beneficiary(s): the final distribution can result in bracket creep, which can work against the previous investment gains. Letter Rulings 9931048 and 9931049 offer guidance to soften the dilemma.

The IRS had previously indicated that, if multiple designated beneficiaries were involved in an IRA rollover, the life of the oldest beneficiary would control the required distribution for all. Thus, because the oldest would have the...