Cents and Sensibility
Cents and Sensibility
Question: "I'm almost 70 years old and will soon have to take a required distribution from my IRA. How do I determine the minimum amount I must take?" New IRA distributions
can simplify your lifeAnswer: If you've had difficulty understanding the rules associated with taking money out of your qualified retirement plans and Individual Retirement Accounts, well, help is here.
The Treasury Department approved a sweeping overhaul of the required minimum distribution (RMD) rules from qualified retirement plans and IRAs. The rules are effective for distributions on or after January 1, 2002. For 2001 distributions IRA owners will be permitted, but not required, to use the new rules.
Whereas the old rules for calculating RMDs were complex, the new rules are less confusing and make the amount you withdraw each year easy to calculate.
In many instances, IRA accountholders will be able to reduce the amount they are required to withdraw. The smaller the distribution, the smaller the tax bill.
Additionally, the new rules offer more opportunities for tax-deferred growth and benefits to one's heirs.
Other ways the new regulations simplify the rules include:
>> Providing a simple, uniform table that all accountholders can use to determine the minimum distribution required during their lifetime. This makes it far easier to calculate the required minimum distributions because employees would no longer need to determine their beneficiary by their required beginning date and no longer need to decide whether or not to recalculate their life expectancy each year in determining required minimum distributions.
>> Permitting the required minimum distribution during the accountholder's lifetime to be calculated without regard to the beneficiary's age (except when required distributions can be reduced by taking into account the age of a spouse beneficiary who is more than 10 years younger than the accountholder).
>> Permitting the beneficiary to be finalized as late as the end of the year following the year of the accountholder's death.
>> In most cases, permitting the calculation of post-death minimum distributions to be based on the beneficiary's single life expectancy, thus allowing distributions in all cases to be spread over a number of years after death.
As with any change in regulations, it is important to be fully informed. Contact your investment representative to determine how these new rules can work for you.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com