More Clarity And Simplicity In New Required Minimum Distribution Rules

–Marital status of participants will be determined as of January 1 each year. Thus, if the participant marries, or becomes widowed or divorced during the year, the change in status will not affect his distributions until the following year.

–Following the death of a participant, the date for determining the identity of the designated beneficiary will be September 30 (of the year after the year the decedent died) instead of December 31. This allows a 3-month period for calculating and making the required distribution by December 31.

–Under a transition rule, many beneficiaries who defaulted to the 5-year rule under the 1987 regs will be able to switch to a life expectancy payout. However, any missed distributions will have to be taken by the earlier of Dec. 31, 2003, or the end of the fifth year following the decedent's death.

This will be a great planning tool for some participants who missed the chance to stretch out distributions under the old rules.

–In calculating an individual's first distribution (generally due by April 1 of the year after he reaches age 70), the account balance will no longer be reduced for distribution amounts received from January 1 to April 1.

–A new deadline has been added for the documentation requirement that applies when a trust is named as beneficiary. The documentation required under prior law must be provided by October 31 of the year after the decedent's death. (Since this deadline is new, a transition rule applies through 2003.)

–New reporting requirements that appeared in the 2001 regs for IRA custodians and trustees were clarified. Instead of being required to report to the IRS the amount of the individual's required distribution to the IRS (as was stated under the 2001 rules), IRA custodians will be required to identify each IRA for which a minimum distribution is required. However, the custodian will be required to calculate the individual's required distribution, upon a request by the individual.

–Regulations were issued in temporary and proposed form for annuity payouts from defined benefit plans, since these were not addressed in the 2001 regulations. Changes include an expanded number of options for providing increasing payments (such as cost of living adjustments).

April Caudill, J.D., CLU, ChFC, is managing editor of Tax Facts and ASRS, National Underwriter Company publications.

Reproduced from National Underwriter Life & Health/Financial Services Edition, May 13, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.