| Under the new simplified rules no
decisions have to be made at age 70 ½. And while IRA
owners are still required to begin making withdrawals
by April 1st of the year after they reach age 70 ½,
many will now be able to reduce the amount of the
taxable payouts. The simplified rules will help
taxpayers understand the IRA withdrawal requirements
and will also help the IRS catch those who don't. Most of the news for IRA
owners is good.
- You no longer have to irrevocably
name your beneficiaries by April 1 of the year
after you reach 70 ½. You can now name and change
beneficiaries at any time.
- You no longer have to choose a
life expectancy to use in determining your
required distributions. Most people will now use a
generous uniform life expectancy table that
assumes your beneficiary is 10 years younger than
you. This means that many IRA owners will be able
to reduce their required annual payouts and
preserve their IRAs. (Your required distributions
will be lower this year if your beneficiary is
less than 10 years younger than you).
- After your death, your
beneficiaries will have improved opportunities to
stretch out the IRA payments and limit tax
liabilities.
Now for the bad news. Your IRA
providers will be required to report your minimum
required distribution information to the IRS in a way
that will make it easy for the IRA to check on you. If
you do not take the required payout in any year, the
penalty is 50% of the underpayment. What you need to know.
If you turn 70 ½ this year (2001), or are already
older than 70 ½:
- Call your IRA provider (e.g.
bank, mutual fund) and ask about getting your
minimum distribution payout lowered. You will
probably be able to lower it if your spouse is
your beneficiary and he/she is less than 10 years
younger than you.
- Unless your spouse is more than
10 years younger than you, you can calculate your
required minimum distribution yourself using the
"Uniform Table" which is reproduced in
this issue of the Elder Advisor.
If you are the beneficiary of an
inherited IRA:
- Under the old rules children and
other non-spouses who inherited an IRA often had
to take the proceeds quickly. Now, under the new
rules, most beneficiaries will be able to take the
proceeds gradually, over their lifetimes. This
means that they can stretch out the payments and
preserve the IRA build while lowering their
current tax. If you have inherited an IRA you
should check with the IRA provider to see if you
can lower your required distributions this year.
- If you are over 70 ½ and want to
change your beneficiary designations you can now
do so without raising your required distributions.
If you are retired and have kept
your retirement funds in your 401(k) or 403(b) Plan:
- The new rules also apply to
401(k) plans but can be used this year only if
your plan is amended by the end of the year. It
appears that 403(b) plans will not need to be
amended before participants can use the new rules.
Check with your Plan Administrator for more
information.
- Many 401K Plans do not let your
children stretch out their payments over their
lifetimes. Check with your Plan's Administrator.
If this is important to you, you may want to roll
your 401K plan over into an IRA after you retire.
If you are the owner of a Roth
IRA the new rules have less impact because you are not
required to take any lifetime distributions from your
Roth IRA.
- Post death planning by your heirs
is crucial. Problems in plans may now be corrected
until December 31 of the year following the IRA
owner's death and there are opportunities to
minimize taxes through techniques such as
disclaimers. The new rules make it even more
important for heirs to seek expert assistance
after an IRA owner dies.
- Proper planning for IRAs is more
important than ever. One option is to create a
laddered disclaimer IRA plan. This exciting
alternative allows you to preserve your financial
security during life then offers your heirs the
opportunity through tax deferred compounding to
turn even a modest IRA inheritance into millions
of dollars for your children and grandchildren.
ALL IRA owners can use the Uniform
Table to determine their annual required minimum
distributions for 2001 and later years. To determine
your required distribution for this year:
(A) Take your account balance as of the end of
the preceding calendar year;
(B) divide the account balance by the
"applicable divisor" for your age on your
birthday which occurs this year.
This table does not apply to beneficiaries of a
deceased IRA owner; or if the sole beneficiary of the
IRA is the participant's spouse who is more than 10
years younger than the participant. This table may not
be used for year 2000 distributions taken in 2000 or
2001. |
