For taxpayers who must receive distributions from their IRAs, the IRS not only has simplified the rules, it has reduced the minimum amount which most taxpayers must withdraw for all years beginning with 2001.
The new IRS rules will benefit all taxpayers - married or single - except those whose spouses are more than 10 years younger than the IRA owner. The IRA owners with spouses more than 10 years younger are not disadvantaged by the new rules; they will continue to use the prior rules.
The new rules provide a table which shows the portion of the IRA that the taxpayer must withdraw each year. The new rules make the minimum withdrawals dependent only on the taxpayer's age in the year when the withdrawal must be made.
For example, a taxpayer whose 75th birthday occurs in 2001 must withdraw in 2001 1/21.8 of the IRA's 12/31/00 account balance.
The new rules also eliminate many of the complexities of the prior rules. For example, taxpayers no longer have to be concerned with whether to calculate or recalculate their life expectancies when they reach 70-1/2 and they no longer have to determine their "designated beneficiary" when they receive their first mandatory distribution.
There are also new rules for "inherited" IRAs - how much and how quickly must the children withdraw from their parents' IRAs after both parents are deceased.
New rules also permit the designation of a charity to receive the distributions upon the death of the owner without increasing the minimum withdrawals which the owner must make during life. (Direct transfers to charity from IRAs during the life of the owner are not permitted, but President Bush has proposed adding that provision for IRA owners who are over age 59.)
The new rules apply not only to IRA owners but also to participants in IRS qualified profit sharing and pension plans.
If you want to learn more about the new rules and how they may apply to you, please contact any member of the Kirkland & Ellis Trusts & Estates Group: Deborah V. Dunn 312/861-2206, David A. Handler 312/861-2477.
John E. Kirkpatrick is a partner in Kirkland & Ellis' Chicago office.
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