Simplified Rules for Required Distributions from Retirement Plans

April 19, 2002

Dear Friends In an effort to keep our clients and friends informed about recent legal developments which may affect them in their personal, financial and legal planning, we periodically notify them by a letter or memorandum summarizing areas that we think will be of interest. In this brief memo we focus on:

House Passes Permanent Tax-Cut Bill

On April 18 the House approved a measure that would make permanent the tax-cut provisions contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16) by a vote of 229 to 198. The bill's fate in the Senate is uncertain, since Senate Majority Leader Thomas A. Daschle, D-S.D. refuses to bring it up for a vote.

Simplified Rules for Required Distributions from Retirement Plans

On April 16 the Internal Revenue Service announced that simplified rules for required retirement plan distributions, incorporating many suggestions made after the IRS proposed these rules in January 2001, will take effect next year. A section of the regulations dealing with annuity payments has been substantially changed and has been issued as a temporary regulation, giving taxpayers a chance to offer additional feedback. The final regulations also include the new life expectancy tables called for in the Economic Growth and Tax Relief Reconciliation Act of 2001. These tables provide for distributions to occur over a longer period than previous tables. According to the announcement, the latest guidance generally keeps last year's simplifications to the minimum distribution rules and adds some new elements, including: Advancing the deadline for determining a designated beneficiary from Dec. 31 to Sept. 30 of the year after a plan participant's year of death, making it easier to determine the initial distribution that must be made by the end of that year. Clarifying rules related to separate accounts with different beneficiaries. Simplifying the calculation of required minimum distributions (RMDs) by eliminating certain variables. Requiring IRA trustees to report the RMD amount to IRA owners, or to calculate it for the owners on request, but not report the RMD amount to the IRS. The first report will be due January 31, 2003, alerting IRA owners to the distribution they must take for 2003. Starting in 2004, trustees will identify to the IRS each IRA for which a lifetime minimum distribution is required for the year. At this time, the IRS will not require these reports for beneficiaries' IRAs. For 2002, taxpayers have the option of using the new rules, the 2001 proposal, or the original 1987 proposed regulations. The final and temporary regulations on required distributions from retirement plans were published in the Federal Register on April 17 at http://www.irs.gov/pub/irs-regs/td8987.pdf. The temporary regulations related to annuity payments will also be available on the IRS Web site at www.irs.gov, and taxpayers may submit comments on these regulations through that site. Notice 2002-27 contains the RMD reporting requirements for IRAs. It will be available soon on the IRS Web site and will be published in Internal Revenue Bulletin 2002-18, dated May 6, 2002.

Please call if you would like further information about the topics addressed in this Memorandum. Also, if you know anyone else who would like a copy of this Memorandum, please let us know. This Memorandum is intended to provide general information concerning legal developments. It is not intended to be and should not be regarded as a legal opinion or legal advice on which you should rely without seeking legal counsel.