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Minimum Distribution FAQ
This information is designed to answer some of the general questions you may
have.
Q. How is my age calculated?
A. Age is your attained age as of your birthday in the
calendar year that goes with the distribution year.
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Q. What account balance should be used?
A. You should use you account balance as of December 31st of the
previous year.
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Q. How are my non-deductible contributions treated?
A. If you have made non-deductible contributions, a portion of each
payment will be received income tax-free as a return of contributions. All
interest earned, even interest earned on non-deductible contributions will be
subject to tax.
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Q. What is the Required Beginning Date [RBD]?
A. For an IRA, the required beginning date for traditional IRAs is April
1st of the calendar year following the year in which the owner attains the age
of 70.5.
For qualified plans, the RBD is defined differently. If the participant has not
retired by age 70.5, the participant may wait until retirement from active
employment to begin distributions from his or her qualified plan. However, this
special rule does not apply if the participant is a 5% or greater owner of the
employer.
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Q. Who is a 5% owner?
A. a 5-percent owner is an employee who is a 5-percent owner (as defined
in section 416) with respect to the plan year ending in the calendar year in
which the employee attains age 70.
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Q. What is the effective date of the new proposed
regulations?
A. These regulations are proposed to be effective for distributions for
calendar years beginning on or after January 1, 2002. For distributions for the
2001 calendar year, IRA owners are permitted, but not required, to follow these
proposed regulations in operation, notwithstanding the terms of the IRA
documents. Paragraph 53.
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Q. Can a taxpayer rely on the new proposed regulations?
A. The regulations are proposed to be applicable for determining
required minimum distributions for calendar years beginning on or after January
1, 2002. For determining required minimum distributions for calendar year 2001,
taxpayers may rely on these proposed regulations or on the 1987 proposed
regulations. If, and to the extent, future guidance is more restrictive than
the guidance in these proposed regulations, the future guidance will be issued
without retroactive effect. Paragraph 54.
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Q. Who is impacted by the proposed regulations?
A. Everybody is covered by the proposed regulations, regardless of age.
The purpose of the regs is to enable the custodians to calculate everyone's
Required Minimum Distribution [RMD] so they can report it to the IRS. The IRS
will then be able to match the custodians records with the taxpayers 1040 and
go after and penalize the under-withdrawers. Essentially this means that a lot
of mistakes like selecting the wrong calculation method, can now be fixed.
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Q. If the owner dies without a designated beneficiary after
the RBD, how is the Distribution Period measured?
A. The distribution period is the remaining life expectancy of the
employee using the age of the employee as of the employee's birthday in the
calendar year of the employee's death. In subsequent calendar years the
applicable distribution period is reduced by one for each calendar year that
has elapsed since the calendar year of death.
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Q. If the owner dies with a designated beneficiary (other
than his/her spouse) after the RBD, how is the Distribution Period measured?
A. The applicable distribution period measured by the beneficiary's
remaining life expectancy is determined using the beneficiary's age as of the
beneficiary's birthday in the calendar year immediately following the calendar
year of the employee's death. In subsequent calendar years the applicable
distribution period is reduced by one for each calendar year that has elapsed
since the calendar year immediately following the calendar year of the
employee's death.
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Q. If the owner dies after the RBD and the owner's spouse if
the designated beneficiary, how is the remaining distribution period measured?
A. If the surviving spouse of the employee is the employee's sole
beneficiary, the applicable period is measured by the surviving spouse's life
expectancy using the surviving spouse's birthday for each distribution calendar
year for which a required minimum distribution is required after the calendar
year of the employee's death.
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Q. What happens at the subsequent death of the spouse
beneficiary?
A. For calendar years after the calendar year of the spouse's
death, the spouse's remaining life expectancy is the life expectancy of the
spouse using the age of the spouse as of the spouse's birthday in the calendar
year of the spouse's death. In subsequent calendar years, the applicable
distribution period is reduced by one for each calendar year that has elapsed
since the calendar year immediately following the calendar year of the spouse's
death.
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Q. Can the deceased owner's spouse do a roll over of the
account to his/her name?
A. Except for the required minimum distribution for the year of the
individual's death, the spouse is permitted to roll over the post-death
distribution under section for a year if the spouse is establishing the IRA
rollover account in the name of the spouse as IRA owner.
However, if the surviving spouse is age 70 1/2 or older, the minimum lifetime
distribution required under section 401(a)(9)(A) must be made for the year and,
because it is a required minimum distribution, that amount may not be rolled
over.
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Q. How is the roll over accomplished?
A. The proposed regulations provide that this election by a surviving
spouse eligible to treat an IRA as the spouse's own may also be accomplished by
redesignating the IRA with the name of the surviving spouse as owner rather
than beneficiary.
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