Cell: 415 308-0678
Fax: 415 704-3238
Lee@RileyAccounting.net
1001 Bridgeway, #229
Sausalito, CA 94965
Conference room locations;
San Francisco
Directions Map
Sausalito
Directions Map
San Mateo
Directions Map
Larkspur
Directions Map
Walnut Creek
Directions Map
Fax: 415 704-3238
Lee@RileyAccounting.net
1001 Bridgeway, #229
Sausalito, CA 94965
Conference room locations;
San Francisco
Directions Map
Sausalito
Directions Map
San Mateo
Directions Map
Larkspur
Directions Map
Walnut Creek
Directions Map
| Robert Lee Riley CPA, MBA-tax |
| Riley Accounting |
IRA distributions - the new rules
Once you hit 70-1/2, withdrawals must begin.
Old rules or new, it's (mostly) up to you. Though no downside to
applying the new rules has been mentioned by commentators,
you can generally apply the new rules, or the old ones-at your
option. Specifically, owners of traditional IRAs, and beneficiaries
and heirs (where no designated beneficiaries) of deceased
owners, can apply the new rules even though their IRA
documents prescribe distribution under the old rules.
But the new rules don't apply to participants (or their
beneficiaries or heirs) in employer retirement plans until those
plans are amended to reflect the new rules. The IRS has made it
easy for plans to do this, effective for 2001 and after.
The new rules' major change is to allow you, automatically, to
spread your withdrawals over a period substantially longer than
your life expectancy. Under the old rules, you were able to match
this deferral period only by designating a beneficiary at least 10
years younger than you.
Under the new rules, the life expectancy of your designated
beneficiary (if you have one) is irrelevant in figuring your
withdrawal period (except for a beneficiary spouse more than 10
years younger). Thus, you can change your designated
beneficiary at will, or replace one who died, without affecting your
withdrawal period (except for a change to or from a spouse more
than 10 years younger).
Designating a beneficiary is no longer needed to prolong
distributions during your lifetime (except where your beneficiary
spouse is more than 10 years younger than you). But it's still
needed to prolong the distribution during your beneficiary's
lifetime, should the beneficiary want that (some will want the
money right away).
Of course, designating a beneficiary is wise as a matter of
planning for the disposition of your assets. Your IRA transfers to
your beneficiary based upon your IRA account designation. Your
IRA does NOT transfer by the terms in your will or living trust.
If your spouse remains a beneficiary, he or she doesn't have to
start withdrawals until you would have reached age 70-1/2—
after which withdrawals will be taken under the IRS table.
Generally, there will not be an estate tax on retirement plan
assets left to a spouse and the spouse will pay income taxes
only as funds are withdrawn.
No beneficiary. If you die before April 1 after the year you reach
age 70 ½ haveing named no beneficiary or, in most cases.
where your beneficiary is not a human being (such as an estate
or a charity), all funds must be distributed —and income taxes
paid—within five to six years of your death. Heirs don't get the
option of using their own life expectancy.
If you die on or after that April 1 date without having named a
beneficiary or having named your estate as the beneficiary, the
money must come out by the end of the period remaining under
the IRS table. For example, at age 80 the table period is 17.6. On
a death at age 80, the estate or heirs would have 17.6 years to
complete withdrawal.
Example: If you gave your wife a $500,000 stock-and-bond
portfolio, she will not pay income tax on receipt of the portfolio. Or
if you leave your son a $150,000 vacation home, he will not pay
income tax when he receives it. But if you leave your daughter the
$150,000 in your IRA, she will be subject to income tax on it,
more or less as you would be if you had received the
distributions yourself. (Moreover, there may be a further estate tax
as well.)
Once you hit 70-1/2, withdrawals must begin.
Old rules or new, it's (mostly) up to you. Though no downside to
applying the new rules has been mentioned by commentators,
you can generally apply the new rules, or the old ones-at your
option. Specifically, owners of traditional IRAs, and beneficiaries
and heirs (where no designated beneficiaries) of deceased
owners, can apply the new rules even though their IRA
documents prescribe distribution under the old rules.
But the new rules don't apply to participants (or their
beneficiaries or heirs) in employer retirement plans until those
plans are amended to reflect the new rules. The IRS has made it
easy for plans to do this, effective for 2001 and after.
The new rules' major change is to allow you, automatically, to
spread your withdrawals over a period substantially longer than
your life expectancy. Under the old rules, you were able to match
this deferral period only by designating a beneficiary at least 10
years younger than you.
Under the new rules, the life expectancy of your designated
beneficiary (if you have one) is irrelevant in figuring your
withdrawal period (except for a beneficiary spouse more than 10
years younger). Thus, you can change your designated
beneficiary at will, or replace one who died, without affecting your
withdrawal period (except for a change to or from a spouse more
than 10 years younger).
Designating a beneficiary is no longer needed to prolong
distributions during your lifetime (except where your beneficiary
spouse is more than 10 years younger than you). But it's still
needed to prolong the distribution during your beneficiary's
lifetime, should the beneficiary want that (some will want the
money right away).
Of course, designating a beneficiary is wise as a matter of
planning for the disposition of your assets. Your IRA transfers to
your beneficiary based upon your IRA account designation. Your
IRA does NOT transfer by the terms in your will or living trust.
If your spouse remains a beneficiary, he or she doesn't have to
start withdrawals until you would have reached age 70-1/2—
after which withdrawals will be taken under the IRS table.
Generally, there will not be an estate tax on retirement plan
assets left to a spouse and the spouse will pay income taxes
only as funds are withdrawn.
No beneficiary. If you die before April 1 after the year you reach
age 70 ½ haveing named no beneficiary or, in most cases.
where your beneficiary is not a human being (such as an estate
or a charity), all funds must be distributed —and income taxes
paid—within five to six years of your death. Heirs don't get the
option of using their own life expectancy.
If you die on or after that April 1 date without having named a
beneficiary or having named your estate as the beneficiary, the
money must come out by the end of the period remaining under
the IRS table. For example, at age 80 the table period is 17.6. On
a death at age 80, the estate or heirs would have 17.6 years to
complete withdrawal.
Example: If you gave your wife a $500,000 stock-and-bond
portfolio, she will not pay income tax on receipt of the portfolio. Or
if you leave your son a $150,000 vacation home, he will not pay
income tax when he receives it. But if you leave your daughter the
$150,000 in your IRA, she will be subject to income tax on it,
more or less as you would be if you had received the
distributions yourself. (Moreover, there may be a further estate tax
as well.)