Treasury proposes new simplified rules for retirement plan minimum distributions.

• Author: Moore, Philip E.

On Jan. 19, 2001, Treasury issued proposed regulations substantially simplifying and reducing the minimum required distributions (MRDs) from most retirement plans. The new proposed regulations replace proposed regulations issued in 1987, and they spell out the MRDs for tax-qualified retirement plans.

Current law prescribes substantial penalties for taxpayers who are age 70 1/2 and do not take the MRD from their retirement plans. Until now, MRDs could be determined under several different methods. The employee had to select a method before the required beginning date (RBD); once selected, the employee was locked in and could not adopt a different method in a later year, even if his situation changed. While not simple, the new proposed regulations are simpler than the 1987 proposed regulations and, in many cases, require a smaller MRD.

Lifetime Distributions

The proposed regulations require that, during life, almost everyone must use the same method for calculating their MRDs. The one exception is for an employee with a beneficiary who is a spouse more than 10 years younger than the employee. In that situation, the MRD is based on a longer payout period, resulting in a smaller MRD.

MRDs must begin by the RBD. For all employees (except five-percent owners and IRA owners), the RBD is April 1 of the year following the later of the year the employee either retires or reaches age 70 1/2. For five-percent owners and IRA owners, the RBD is April 1 of the year after the year the employee turns 70 1/2, even if he has not retired.

Exhibit 1, the Uniform Distribution Period Table, presents the data used to calculate MRDs for any year requiring distribution. The table is the same as the table identified as the Minimum Distribution Incidental Benefit (MDIB) table prescribed in the 1987 proposed regulations. Under the new proposal, a taxpayer's minimum distribution for any calendar year is the quotient obtained by dividing the employee's account balance by the distribution period obtained from the Uniform Distribution Period Table.

Exhibit 1: Uniform Distribution Period Table Employee Distribution age period 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 18.4 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 91 9.9 92 9.4 93 8.8 94 8.3 95 7.8 96 7.3 97 6.9 98 6.5 99 6.1 100 5.7 101 5.3 102 5.0 103 4.7 104 4.4 105 4.1 106 3.8 107 3.6 108 3.3 109 3.1 110 2.8 111 2.6 112 2.4 113 2.2 114 2.0 115...