By now, most of you have read something on the new (and final) regulations for qualified plan distributions, which were issued by the IRS on April 16 of this year.
As an annuity producer, you may not have paid close attention to these regulations, since they apply to qualified plans. I want to urge you, however, to pay close attention for two very important reasons: 1.) about half of all annuities sold are qualified; therefore, you do need to have qualified plan expertise in the annuity business; and 2.) your clients need you on this issue. They can save money using the new regulations and you can earn money by helping them.
First, some history. Weve waited a long time for these regulations. The Tax Reform Act of 1986 brought about sweeping changes on how distributions from qualified plans were to be handled. Most notably, the law set forth the general rules of required minimum distributions beginning at 70. General rules, however, do not a tax code make, and therefore, Congress left it to the IRS to write the regulations. The IRS moved with reasonable speed and issued proposed regulations in July 1987. The proposed regulations were over 60 pages long (fine print) and quite complicated.
The IRS repeatedly promised that final regulations would be published "soon." They must have meant that in a geological sense.
Thirteen years came and went, when in 2001 the IRS issued not final regulations, but another set of proposed regulations. To their credit, the proposed regulations of 2001 were a significant simplification and improvement over the proposed regulations of 1987. And, again to their credit, the IRS issued final regulations in a reasonable timeframe (April 16, 2002).
These final regulations were largely consistent with the proposed regulations, and included updated (improved) mortality tables.
Heres what it means to you. For your clients who have qualified money [IRA, TSA, 401(k), 457, 401(a), etc.] in annuities or not, you have a tremendous planning opportunity. Youll note that the knowledge you acquire by learning the new regulations will serve as a great prospecting tool as well. Here are just some of the planning points that result from the new regulations:
1.) At 70 and beyond, required distributions can be much lower, thanks to new rules and new mortality. For example, for a $300,000 IRA for a 75-year old husband and wife, the old method (depending on elections) may have caused them to take a $19,230 distribution, whereas the new regulations would only require a $13,100 distribution. If they dont need this income, this will result in a significant tax saving, especially over a number of years.
2.) Pre-59 life expectancy calculations may now be altered using new life expectancy tables, without subjecting the change to penalties under the "substantially equal" rule.
3.) Beneficiaries who defaulted to, or who were otherwise subject to the 5-year distribution rule, may now switch to a life expectancy distribution period.
