The proposed regulations reduce the amount of required minimum distributions, allowing retirees to preserve more of their retirement savings in their tax-free accounts for a longer time. The proposals also decrease the minimum amount that must be withdrawn at age 70 1/2.

The new rules, which use a single life expectancy table to determine distribution amounts, eliminate many potential traps for retirees who faced a puzzling array of distribution and beneficiary choices under prior regulations in force since 1987, according to tax research and software giant CCH.

The rules, which are still subject to public comment and possible revision, are not expected to become final until January 1, 2002. However, taxpayers can make use of the new rules immediately, and won't suffer if the final version of the regulations is more restrictive than the ones just issued, according to Nicholas Kaster, CCH senior pension law analyst.

"Many people have hoped that the IRS would issue something more workable than the original 1987 regulations for a long time. Congress even wrote that wish into tax legislation that nearly became law last year," Kaster observed. "It seems that with these regulations the IRS has addressed many of the issues that have concerned account holders and the benefits community for many years."

However, Kaster advised people to familiarize themselves with the new rules before they make any decision regarding a distribution in 2001.

Distributions from IRAs and 401(k)s must begin when a retiree reaches age 70 1/2. Under previous regulations, retirees had to choose between several methods for computing the required minimum amount of the distribution and had to name one or more beneficiaries at that time.

Under the new regulations, for each yearly distribution, in most cases, retirees simply divide the account balance at the end of the previous year by a number from the new life expectancy table. Generally, the new table will produce lower required distributions, Kaster said.

While the old rules required that a beneficiary be named when distributions begin at the account holder's death, under the new rules, beneficiaries can be determined as late as the end of the year following the account holder's death. And, in many cases beneficiaries will be able to stretch distributions out over a longer period than under the old rules, CCH said.

"Allowing for a change of beneficiaries -- even after the account holder's death -- will allow families to make the maximum use of the IRA,'' Kaster noted.

The proposed regulations also address questions such as naming a trust as a beneficiary and payments to a former spouse under a qualified domestic relations order.

-- SmartPros News Staff

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