IRS Offers Sample Amendments for RMD

Qualified retirement plans generally must be amended by the last day of the first plan year beginning on or after January 1, 2003, to comply with recently issued regulations on required minimum distributions.  Additionally, all determination letter applications for individually designed plans submitted in 2003 will take those regulations into consideration, according to Revenue Procedure 2002-29, issued last week.

The “rev proc” includes two model “snap-on” amendments, one for defined benefit and another for defined contribution plans, which plan sponsors can adopt to satisfy the requirements of the new regulations.

Internal Revenue Code (IRC) Section 401(a)(9) requires that distributions from qualified retirement plans begin on April 1 of the year following the later of the year during which the employee either turns age 70.5 or retires.  Those payments must be made in the amount(s) based on the life of the employee or, in some cases, the life of the employee plus a designated beneficiary.

Kinder, Gentler?

This past April, the IRS issued final regulations that expanded on simplifications to the process initially proposed in 2001.  Those regulations:

• provided a uniform table to determine the amount of the required minimum distributions regardless of age,
• allowed a beneficiary to be determined up to the end of the year following an employee’s death, and
• allowed life expectancy at the time of death to be taken into account in the calculation of posthumous minimum distributions.

In response to comments from industry groups and practitioners, the final regulations changed the date for determining the designated beneficiary from December 31 to Sept. 30 of the year following death to allow adequate time to calculate and distribute the minimum amount.

IRA Breathing Room

Additionally, while the 2001 proposed regulations would have required the trustee, issuer, or custodian of an IRA to report the required distribution from an IRA to owners and IRS under certain conditions, the final regulations only require that if a minimum distribution is required for a calendar year, and the IRA owner is alive for the beginning of that year, an IRA trustee who holds the account as of the end of the year must provide a statement to the owner by January 31 under one of two alternatives provided in Notice 2002-27, effective beginning in 2003. 

In either event, the statement must inform the owner that the trustee will be reporting to the  IRS, beginning in 2004, that the IRA owner is required to receive a required minimum distribution for the year.

The final regulations apply for determining required minimum distributions on or after Jan. 1, 2003. For determining required minimum distributions for 2002, taxpayers may rely on the final regulations, the 2001 proposed regulations, or the 1987 proposed regulations.

The model amendments provide a transition rule for plans that switched from using the 1987 proposed regulations to the new final regulations in 2002.

Revenue Procedure 2002-29 is online at IRS Website