IRS Issues Final Required Minimum Distribution (RMD) Regulations
Rev. 04/17/02, E-mail Alert 2004-25

The IRS published Final RMD Regulations in the Federal Register of April 17, 2002. These regulations are generally effective as of January 1, 2003.

The Proposed Regulations were very favorably received, and most of the text of the proposed regulations was carried over to the final version. In addition, many of the comments suggesting changes or clarifications were incorporated into the final regulations.

Some highlights of the final regulation follow. Below are electronic links to the Final Regulations and Notice 2002-27, which describes IRA reporting requirements under the new rules.

NEW LIFE EXPECTANCY TABLES
Effective with 2003, new life expectancy tables are to be used in determining RMDs. For example, the new "Uniform Table" has a life expectancy of 27.4 years at age 70, versus the old table that used 26.4 years. The Joint and Single Life Tables have also been updated for the first time since 1986. For example, the single life expectancy to be used in 2003 for an individual age 70 will be 17 years instead of the current 16 years.

BENEFICIARY DETERMINATION DEADLINE CHANGE
In response to feedback on the proposed regulations, the IRS has changed the deadline for naming of a beneficiary from December 31 of the year following death to September 30th of the year following death. This provides time necessary to calculate and process the RMD by the deadline, December 31st of the year following the date of death.

IRA RMD REPORTING REQUIREMENTS MODIFIED AND DEFERRED
IRA Trustees/Custodians/Issuers will be pleased to know that the IRS has changed their requirements for reporting IRA RMDs. Starting in 2004, the Form 5498 must reflect that the IRA owner was required to take an RMD. However, the amount of the RMD is not reported to the IRS. By January 31, 2003, for the 2003 tax year, the institution must either send a report to the IRA owner which either indicates the RMD amount or informs the owner that an RMD is required and that the RMD amount is available upon request. The revised reporting and notice requirements are found in IRS Notice 2002-27.

CLARIFYING DETERMINATION OF THE DESIGNATED BENEFICIARY RULES
The designated beneficiary will be any remaining beneficiary as of September 30th following the year of death. Thus, any beneficiary(s) who already took a lump sum and any beneficiary(s) who disclaimed would be disregarded for purposes of determining the RMD. The disclaimer must satisfy IRC section 2518. In the case of multiple beneficiaries, if the funds have not been divided into separate accounts by the end of the year following the year of death, the life expectancy of the beneficiary with the shortest life expectancy will be used to calculate the RMD amounts for all of the beneficiaries.

CALCULATION SIMPLIFICATIONS
Beginning in 2003, RMDs taken on April 1st will no longer have to be subtracted from the previous December 31st balance before calculating the second calendar year's distribution. Contributions made after January 1st for the prior year no longer have to be added back to the prior year December 31st balance except for rollovers and recharacterized conversion amounts which are not in any account on December 31st balance.

AMENDMENT OF QUALIFIED PLAN
IRS intends to provide separate guidance on the timing for amending qualified plans to reflect the final regulations.

AMENDMENT OF IRA
Rev. Proc. 2002-10 provides guidance on when IRA documents must be updated for these final regulations and for EGTRRA.

Bill Grossman, QPA