Simplified minimum distribution rules.

• Author: Packard, Pamela

The IRS recently issued proposed amendments to 1987 proposed income tax regulations and to pension excise tax regulations under Secs. 401,403,408 and 4974 of the 1986 Code. The regulations simplify the required minimum distribution (RMD) rules for qualified retirement plans (QRPs), individual retirement accounts (IRAs) and annuities, Roth IRAs, Sec. 403(b) annuity contracts and Sec. 457 deferred compensation plans. They also provide new rules on related peripheral issues.

Under the RMD rules, distributions from retirement plans must begin on an individual's required beginning date (RBD). The RBD for employees (other than five-percent owners) is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70 1/2, or the calendar year in which the employee retires. For five-percent owners and IRA owners, the RBD is April 1 of the calendar year following the calendar year in which the individual attains age 70 1/2. For most individuals, the new rules will reduce RMDs and therefore provide greater tax-deferred benefits.

Single Uniform Distribution Method

Generally, during the life of an individual, the RMD is determined by reference to the minimum distribution incidental benefit divisor table presently prescribed in Prop. Regs. Sec. 1.401(a)(9)-2. However, if the individual's sole beneficiary is his spouse and the spouse is more than 10 years younger than him, the individual can use a longer distribution period measured by the joint life and last survivor life expectancy of the individual and spouse. This simplifies the entire procedure by eliminating the need for two tables, the consideration of multiple lives and the need to make tax elections. For years after the year of the individual's death, the distribution period is the remaining life expectancy of any designated beneficiary. If no beneficiary has been designated and the account owner dies after his RBD, the balance is paid out over the account owner's remaining life expectancy. Finally, if no beneficiary has been designated and the account owner dies before his RBD, the balance must be paid out within five years after his death.

Determination of a Designated Beneficiary

Generally, a designated beneficiary is determined as of the end of the year following the year of the individual's death, rather than as of the individual's RBD or date of death (as under the 1987 proposed regulations)...