New Regs A Boon To Retirees, Beneficiaries
(RIVERWOODS, IL., January 18, 2001) Figuring how much to take out of an IRA or
401(k) will be simpler and surer under regulations recently proposed by the IRS, according
to CCH INCORPORATED (CCH), a leading provider of pension, tax and human resources law
information. The new proposed regulations let retirees preserve more of their retirement
savings in their tax-free accounts for a longer time by reducing the amount of
"required minimum distributions." At the same time, the regulations eliminate
many potential traps for retirees who faced a puzzling array of distribution and
beneficiary choices under prior regulations in force since 1987.
The regulations, which are still subject to public comment and possible revision, are
not expected to become "final" until January 1, 2002. However, taxpayers can
make use of the new rules beginning immediately, and will not suffer if the final version
of the regulations is more restrictive than the ones just issued, according to Nicholas
Kaster, JD, CCH senior pension law analyst.
"People should familiarize themselves with the new rules before they make any
decision regarding a distribution in 2001," Kaster said.
Simpler Rules For Distributions
Distributions from IRAs and 401(k)s must begin when a retiree reaches age 70 ½. Under
previous regulations, retirees had to choose between several different methods for
computing the required minimum amount of the distribution and also had to name one or more
beneficiaries at that time. The choices were confusing and it was easy for a retiree to
get "locked in" to a method or beneficiary choice that would be disadvantageous
in the long run.
Under the new regulations, for each yearly distribution, retirees, in most cases,
simply divide the account balance at the end of the previous year by a number from a life
Generally, the new table will produce lower required distributions, and therefore, a
greater ability to preserve the account tax-free, than was possible under the old
regulations," Kaster said.
The distribution table, which was issued as part of the proposed regulations, is
included at the end of this release.
More Flexibility With Beneficiary Designations
New rules for naming beneficiaries dont require that they be designated
irrevocably when distributions begin. Instead, beneficiaries can be determined as late as
the end of the year following the account holders death. Whats more, in many
cases beneficiaries will be able to stretch distributions out over a longer period than
under the old rules.
"Allowing for a change of beneficiaries even after the account
holders death will allow families to make the maximum use of the IRA,"
Dissatisfaction With Prior Regulations
The proposed regulations, issued January 12, also address questions such as naming a
trust as a beneficiary and payments to a former spouse under a qualified domestic
They supersede a set of regulations issued more than 13 years ago. That earlier set
never became "final," but it has been the only guidance available for account
holders and trustees. Dissatisfaction with many aspects of the regulations was widespread.
"Many people have hoped that the IRS would issue something more workable than the
original 1987 regulations for a long time. Congress even wrote that wish into tax
legislation that nearly became law last year," Kaster observed. "It seems that
with these regulations the IRS has addressed many of the issues that have concerned
account holders and the benefits community for many years."
About CCH INCORPORATED
CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served
four generations of business professionals and their clients. The company produces more
than 700 electronic and print products for the tax, legal, securities, insurance, human
resources, health care and small business markets. CCH is a wholly owned subsidiary of
Wolters Kluwer North America. The CCH web site can be accessed at www.cch.com. The CCH Human Resources group web
site can be accessed at http://hr.cch.com.
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Table for determining
General rule. The following table is used for determining the distribution period
for lifetime distributions to an employee.
|Age of the
|115 and older