In January 2001, the Treasury Department released new proposed regulations concerning required minimum distributions from individual retirement accounts (IRAs) and employer-sponsored 401(k), 403(b), and 457 deferred-compensation plans. Although the rules are scheduled to become effective on January 1, 2002, the Treasury Department has indicated that they can be used retroactively to the beginning of 2001. However, if you prefer, you can still use the old rules for distributions made in 2001.

The new rules simplify the calculation of required minimum distributions and give account owners more flexibility. To understand the significance of the new rules, you need to remember a couple of basic points about the old rules. Under the old rules, you needed to decide two things by April 1 of the year after you turned 70 ½ – who your beneficiary was and which of three methods you were going to use to calculate distributions. These two decisions significantly impacted the amount you were required to withdraw each year and, once made, were irrevocable.

The new rules simplify distributions as follows:

• Once you reach age 70 ½, your minimum required distribution is calculated by taking your account balance as of the end of the preceding year divided by your distribution period (as noted in the following table):

This table is used regardless of who your beneficiary is (one exception is noted in the next paragraph). These new distribution rules are expected to reduce the required minimum distribution amount for the vast majority of taxpayers.

• If your spouse is your sole beneficiary and is more than ten years younger than you, you can use either the above table or a table based on the actual joint life expectancy of you and your spouse.
• You can change beneficiaries at any time, with no impact on your minimum required distribution amount. For purposes of determining who receives your account balance after your death, you have until the end of the year following your death to make that determination. This could be accomplished by instructions you leave or by beneficiaries disclaiming their right to the balance.
• After your death, your beneficiary can make withdrawals based on his/her remaining life expectancy. This rule applies regardless of whether you died before or after your required distribution date. If you do not have a designated beneficiary and you die after you start making required minimum distributions, the balance is distributed over your remaining life expectancy at the time of your death. If you die without a designated beneficiary and before your required minimum distribution date, the balance must be paid out within five years of your death.
• Your IRA custodian must now report what your required minimum distribution should be each year to both you and the IRS. This makes it easier for the IRS to monitor whether you have withdrawn at least the minimum amount required. If you do not, you will owe the IRS a tax of 50% of the amount that should have been withdrawn.

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Last modified: January 30, 2017