The regulations covering required minimum distributions (RMD) were finalized in April 2002. Proposed regs were issued in 1987 and 2001. The 2001 revised proposed regs greatly simplified the rules for calculating the RMD, as well as providing a longer time over which a taxpayer can take minimum distributions.
The Final Regulations include most of this “simplification” and include updated life expectancy tables. The last time the tables were revised was in 1983. The new life expectancy tables reflect longer life expectancies and therefore permit required distributions to be smaller.
The final regulations require that you use the new rules and tables for RMD’s required after January 1, 2003.
Keep in mind that these tables only calculate your RMD. You can always withdraw more than what is required. The required minimum withdrawal is used to calculate the 50% excise penalty on Excess Accumulation (Insufficient Distribution). If you do not withdraw the RMD after age 70½, you will be penalized 50% of the shortfall.
- Table I Single Life Expectancy (For Use by Beneficiaries)
- Table II Joint and Last Survivor Expectancy (For Use by Owners whose spouses are more than 10 years younger)
- Table III Uniform Lifetime Table (For Use by Owners)
The Tables, as well as simple explanations of “the rules” can be found in IRS Publication 590, Individual Retirement Arrangements, found at www.irs.gov.
Which Table Do You Use?
Use Table III if you are the IRA owner, unless your spousal beneficiary is more than 10 years younger than you are.
Use Table II if you are the IRA owner and the periodic payments are for your life and the life of your spouse who is more than 10 years younger than you.
Use Table I if you are an individual and the owner’s designated beneficiary but are not both the owner’s spouse and sole beneficiary. (There are special rules for the owner’s spouse.)
Use Table I if you are the owner’s estate or otherwise not an individual and the owner died on or after the required beginning date. (Not to be used in the year of the owner’s death.)
What Age Do You Use with the Table(s)?
Use the age you will be by the end of the calendar year, regardless of when you take the distribution.
For instance, if you are 70 ½ on March 5 and will become 71 on September 5, you will use the divisor found at age 71.
If you are 70½ on December 1 and decide to take your first required minimum distribution in this tax year, you would use the divisor found at age 70.
If you would like any further information regarding this issue as well as any other tax related issue, please contact Henssler Financial at 770-429-9166 or [email protected].