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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-withdrawals. 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 owner using the age of the owner as of the owner'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 owners'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 re-designating the IRA with the name of the surviving spouse as owner rather than beneficiary.

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