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January 23, 2001 CHECK OUT NEW IRS RULES ON RETIREMENT PLANS BEFORE TAKING YOUR REQUIRED DISTRIBUTION THIS YEAR FOR IMMEDIATE RELEASE On January 11th, the IRS announced sweeping changes simplifying the rules regarding mandatory distributions from individual retirement accounts (IRAs) and 401(k) plans. Though the changes are designed to simplify the system, and should benefit most taxpayers, Charles Nance, a trusts and estates attorney with Hirschler Fleischer in Richmond recommends reviewing the new rules before taking required distributions this year. "The major immediate planning implication is that any person who is age 70-1/2 or older should investigate the new rules before taking their required distribution for the year 2001," says Nance. "The new rules offer a much more favorable way for determining required distributions beginning right now. Additionally, the new rules may permit some favorable change in the required distributions for anyone who has inherited a retirement plan." Three Main Areas of Change To summarize briefly, Nance says there are three main areas affected by the new rules. The first is the determination of lifetime required distributions. "The method for calculating lifetime required distributions both at and after the required beginning date has been simplified," said Nance. "From now on, almost everyone will use one uniform table for calculating lifetime required distributions, regardless of who is named as beneficiary," Nance said. IRS RULES CHANGE ADD ONE The new area of change affects after-death required distributions. "Required distributions to your heirs are based on their life expectancies, rather than on the often-complex strategies required by the old rules," Nance says. "Finally," Nance says, "under the old rules people had to choose one of three complex formulas for determining their distributions. Now, most people will use one simple table, which extends the life-expectancy period for most people. This means you may leave more money in your account to continue to grow tax-deferred for a longer period of time." Other Issues to Consider "Another planning issue that could require review is your choice of designated beneficiary," says Nance. "It still remains extremely important to make the right choice of designated beneficiary to maximize tax deferral opportunities. Also, people who are past their required beginning date should review their choice of beneficiary, since there is now a chance to change to a more "favorable" choice for after-death distributions." "Finally, many estate plans written before 1998 include IRA-related provisions which are no longer necessary, including a requirement that the plans become irrevocable after age 70 _, restrictions which can in many cases now be removed," Nance explained. -end- For more information, contact: Charles Nance Hirschler Fleischer P.O. Box 500 701 E. Byrd Street Richmond, Virginia 23218-0500 804-771-9535 (voice); 804-644-0957 (fax) CHART New Minimum Withdrawals Most people will use this new table when determining their minimum annual distribution from their IRAs and 401(k) plans. Anyone who has a spouse more than 10 years younger will use a different table. To use the table, divide the market value of your retirement plan on the last day of the previous year by the number corresponding to the age you will turn this year. The quotient will be your minimum distribution. For example, a 70-year-old with$100,000 in an IRA on Dec. 31, 2000 will have to withdraw $3,816 this year.
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