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Distribution

On April 16, 2002 the IRS issued final regulations for minimum distributions from retirement plans. Before that, we had been working under proposed regulations that had been around since 1987 without ever being finally accepted and a radically different set of proposed regulations enacted in 2001 that were clarified by the 2002 final regulations. The former “proposed” regulations might have been the longest ongoing proposal since Captain Parmenter proposed to Wrangler Jane on the ’60s Western situation comedy F Troop. If you are not a baby boomer, there is no way you would remember that show—your loss.

The idea behind minimum distribution rules is that, except for Roth IRAs, a retirement plan owner must annually withdraw amounts from that retirement account, subject then to income taxes that had been deferred until the time of withdrawal. These required withdrawals are calculated to use up the retirement account over the life expectancy of the plan owner. However, people have a habit of not exactly following statistical models when it comes to things such as life expectancy, and that is where planning opportunities present themselves. In addition, depending on how much the IRA earns, there may well be more money in the account at the death of the owner than at the time of the first required withdrawals. It is also important to remember that the rules concerning minimum distributions are just that: rules as to the minimum you must take out. If you find you need the money, you can take out more at any time without penalty after age 59½, although you must pay income taxes on any amounts you do withdraw from a traditional IRA.


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