The IRS has made retirement a whole lot simpler. Seriously.
The agency not known for being flexible has proposed new regulations that will allow tax-deferred account holders to withdraw fewer dollars and distribute them to beneficiaries in more favorable ways than ever before.
For IRA holders who would prefer to keep their distributions to bare-bones levels, this is good news on two fronts: Lower withdrawals mean lower taxes, and a longer pay-out period allows you to keep your money in its account collecting interest.
Until now, IRA owners approached the government's magic age of 70 1/2 dreading the complicated calculation that determined their required minimum distributions. While the start age for withdrawals hasn't changed -- it remains 70 1/2 -- the formula for deriving monthly withdrawals has.
According to the new rules, most people will determine their distributions with a simplified formula that assumes a longer life expectancy. In cases where a spouse is more than 10 years younger than the account owner, a different table is used.
Other provisions call for more simplified post-death payouts. If a beneficiary was named prior to the account holder's death, the balance of the account can be paid out over the beneficiary's life expectancy. Also, beneficiaries can be named after the account owner's death.
On the downside, trustees will now be responsible for reporting the balance of an IRA and distribution total to the IRS.
Roth IRAs are not affected by the new regulations, as there are no mandatory withdrawal requirements associated with that vehicle. Owners of 401(k) and 403(b) plans can roll over those accounts into an IRA and enjoy the flexibility of the new provisions, which won't become final until Jan. 1, 2002. However, account holders can rely on the new rules to figure their 2001 distributions.
If you are already taking your required distribution, consult your tax adviser to see if the rules reduce your withdrawals. In most cases, they will.
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Find answers to all IRA questions in the Guide to IRAs.
