IRS Proposes Simplified Minimum Required Distribution Calculations

Washington, DC, January 17, 2001 - The Internal Revenue Service recently announced proposed regulations that would substantially simplify the calculation of required minimum distributions (RMDs) from qualified plans, IRAs, and other related savings vehicles in REG-130477 and REG-130481-00. According to the IRS, these regulations would reduce the amount of RMDs for most account owners.

The IRS announced that a public hearing on the proposed regulations has been scheduled for June 1, 2001. Requests to speak at the hearing and outlines of the topics to be discussed are due to the IRS by May 11, 2001. Written and electronic comments on the proposed regulations are due to the IRS by April 19, 2001.

The proposed regulations generally simplify the current RMD rules by:

• providing a simple, uniform table that all owners can use to determine the RMDs required during their lifetime;
• eliminating the need for owners to determine their beneficiaries by the date distributions begin;
• eliminating the need for owners to decide whether to recalculate life expectancy each year;
• eliminating the requirement to satisfy a separate incidental death benefit rule;
• permitting the RMD during the owner’s lifetime to be calculated without regard to the beneficiary’s age (except in cases where the RMD can be reduced by taking into account the age of a beneficiary who is a spouse more than 10 years younger than the owner);
• permitting the beneficiary to be determined as late as the end of the year following the year of the owner’s death; and
• permitting the calculation of post-death minimum distributions to take into account a owner’s remaining life expectancy at the time of death, thus allowing distributions in all cases to be spread over a number of years after death.

One major reporting change would be a requirement that an IRA’s trustee   calculate and report to the owner and IRS both the year-end account balance and the following year’s RMD. This requirement would apply regardless of whether the owner plans to take the RMD from that IRA or another IRA. The proposed regulations also state that similar proposed rules applicable to distribution requirements under section 457(d) will be published in the near future.

The proposed regulations would be effective for determining RMDs for calendar years beginning on or after January 1, 2002, and would not be retroactive. For determining RMDs from IRAs and qualified plans for calendar year 2001, owners may rely on the new proposed regulations or the 1987 proposed regulations.