IRS Announcement 2001-23

Announcement 2001-23; 2001-10 IRB 791 (March 5, 2001)

The Service announces supplements to Publication 575, Pension and Annuity Income, and Publication 590, Individual Retirement Arrangements, that take into account proposed regulations (REG-130477-00; REG-130481-00) substantially simplifying the calculation of minimum required distributions from qualified plans, IRAs, and other related retirement savings vehicles.

SUPPLEMENT TO PUBLICATION 575, PENSION AND ANNUITY INCOME

NEW SIMPLIFIED RULES FOR MINIMUM REQUIRED DISTRIBUTIONS

After Publication 575 was printed, the IRS issued new rules that simplify how minimum required distributions will be figured after 2001. For 2001, the minimum required distribution can be figured using either these new rules or the old rules explained in Publication 575, Pension and Annuity Income. For most people, the new simplified rules will result in lower minimum required distributions.

If you are age 70 1/2 or older and participate in a qualified retirement plan or if you are the beneficiary of such a plan, you may be subject to an additional tax if the amount distributed annually by the plan is less than the minimum required distribution for the year. This additional tax applies to distributions from qualified employee plans, qualified employee annuity plans, section 457 deferred compensation plans, tax-sheltered annuity plans, and individual retirement arrangements (IRAs). The additional tax is discussed in Publication 575 beginning on page 30.

If your required beginning date is April 1, 2001 (either because you attained age 70 1/2 or retired in 2000), and you are taking your minimum required distribution for 2000 by April 1, 2001, do not use the new rules for figuring the distribution for 2000. Instead, use the old rules in Publication 575. Use the new rules for figuring the required distribution for 2001 that must be made by the end of 2001.

For detailed information about the new rules, see the proposed regulations published in the Federal Register on January 17, 2001, 66 F.R. 3928, and Announcement 2001-18 in this Bulletin. The corrected version of the proposed regulations will be in Internal Revenue Bulletin 2001-11 dated March 12, 2001.

DISTRIBUTIONS DURING THE EMPLOYEE'S LIFE-TIME. Under the new rules, minimum required distributions during your lifetime are based on a distribution period that can be determined using a single table and your age. The distribution period is not affected by your beneficiary's age unless your sole beneficiary is your spouse who is more than 10 years younger than you are. In that case you can use a different table.

To figure the minimum required distribution for 2001, divide your account balance at the end of 2000 by the distribution period from the table. You can use the tables in Publication 590, Individual Retirement Arrangements (IRAs), to determine the distribution period. This is the "applicable divisor" listed next to your age (as of your birthday in 2001) in the Table for Determining Applicable Divisor for MDIB (Minimum Distribution Incidental Benefit) on page 80 of Publication 590, unless your sole beneficiary is your spouse who is more than 10 years younger than you are. In that case, use the number at the intersection of the ages of you and your spouse (as of your birthdays in 2001) in Table II (Joint and Last Survivor Expectancy) beginning on page 76 of Publication 590. These rules also apply for figuring the minimum required distribution for 2001 for an employee who dies in 2001 after his or her required beginning date.

DISTRIBUTIONS AFTER THE EMPLOYEE'S DEATH. Under the new rules, if the designated beneficiary of the employee is an individual, such as the employee's spouse or child, minimum required distributions for years after the year of the employee's death are generally based on a distribution period that can be determined using the beneficiary's single life expectancy. This rule applies whether or not the death occurred before the employee's required beginning date. If the employee's beneficiary is not an individual (for example, if the beneficiary is the employee's estate), the rule for determining minimum required distributions for years after the employee's death depends on whether or not the death occurred before the employee's required beginning date.

IF THE EMPLOYEE'S DESIGNATED BENEFICIARY IS AN INDIVIDUAL. To figure the minimum required distribution for 2001, divide the account balance at the end of 2000 by the distribution period. You can use Table I (Single Life Expectancy) in Publication 590 to determine the distribution period, as follows:

SPOUSE AS SOLE DESIGNATED BENEFICIARY. The distribution period
is the divisor listed in the table next to the spouse's age
(as of the spouse's birthday in 2001). If the employee died
before the year in which he or she attained age 70 1/2,
distributions to the spouse need not begin until the year in
which the employee would have attained age 70 1/2,

OTHER DESIGNATED BENEFICIARY. The distribution period is the
divisor listed in the table next to the beneficiary's age (as
of his or her birthday in the year following the year of the
employee's death), reduced by one for each elapsed year since
the year following the employee's death.

IF THE EMPLOYEE'S DESIGNATED BENEFICIARY IS NOT AN INDIVIDUAL. Determine the minimum required distribution for 2001 as follows:

DEATH ON OR AFTER THE REQUIRED BEGINNING DATE. Divide the
account balance at the end of 2000 by the distribution period
from Table I (Single Life Expectancy) on page 75 of
Publication 590. The distribution period is the divisor listed
next to the employee's age (as of his or her birthday in the
year of death), reduced by one for each elapsed year since the
year of death.

DEATH BEFORE THE REQUIRED BEGINNING DATE. The 5-year rule
continues to apply. Under this rule, the entire account must
be distributed by the end of the fifth year following the year
of the employee's death. No distribution is required for a
year before that fifth year. This rule may also be elected by
a beneficiary who is an individual.

SUPPLEMENT TO PUBLICATION 590, INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAs)

NEW SIMPLIFIED RULES FOR MINIMUM REQUIRED DISTRIBUTIONS

After Publication 590 was printed, the IRS issued new rules that simplify how minimum required distributions will be figured after 2001. For 2001, you can figure the minimum required distribution using either these new rules or the old rules explained in Publication 590, Individual Retirement Arrangements (IRAs). For most people, the new simplified rules will result in lower minimum required distributions.

If you are age 70 1/2 or older and own a traditional IRA or if you are the beneficiary of an IRA, you may be subject to an additional tax if you do not take annual distributions from the IRA of at least the minimum required distribution for the year. This is discussed in Publication 590 beginning on page 21, under When Must I Withdraw IRA Assets? (Required Distributions).

If you attained age 70 1/2 in 2000 and are taking your minimum required distribution for 2000 by April 1, 2001, do not use the new rules for figuring the distribution for 2000. Instead, use the old rules in Publication 590. Use the new rules for figuring the required distribution for 2001 that must be made by the end of 2001.

For detailed information about the new rules, see the proposed regulations published in the Federal Register on January 17, 2001, 66 F.R. 3928, and Announcement 2001-18 in this Bulletin. The corrected version of the proposed regulations will be in Internal Revenue Bulletin 2001-11 dated March 12, 2001.

DISTRIBUTIONS DURING THE OWNER'S LIFE-TIME. Under the new rules, minimum required distributions during your lifetime are based on a distribution period that can be determined using a single table and your age. The distribution period is not affected by your beneficiary's age unless your sole beneficiary is your spouse who is more than 10 years younger than you are. In that case, you can use a different table.

To figure the minimum required distribution for 2001, divide your account balance at the end of 2000 by the distribution period from the table. This is the "applicable divisor" listed next to your age (as of your birthday in 2001) in the Table for Determining Applicable Divisor for MDIB (Minimum Distribution Incidental Benefit) on page 80 of Publication 590, unless your sole beneficiary is your spouse who is more than 10 years younger than you are. In that case, use the number at the intersection of the ages of you and your spouse (as of your birthdays in 2001) in Table II (Joint and Last Survivor Expectancy) beginning on page 76 of Publication 590. These rules also apply for figuring the minimum required distribution for 2001 for an owner who dies in 2001 after his or her required beginning date.

DISTRIBUTIONS AFTER THE OWNER'S DEATH. Under the new rules, if the designated beneficiary of the owner is an individual, such as the owner's spouse or child, minimum required distributions for years after the year of the owner's death generally are based on a distribution period that can be determined using the beneficiary's single life expectancy. This rule applies whether or not the death occurred before the owner's required beginning date. If the owner's beneficiary is not an individual (for example, if the beneficiary is the owner's estate), the rule for determining minimum required distributions for years after the owner's death depends on whether or not the death occurred before the owner's required beginning date.

IF THE OWNER'S DESIGNATED BENEFICIARY IS AN INDIVIDUAL. To figure the minimum required distribution for 2001, divide the account balance at the end of 2000 by the distribution period from Table I (Single Life Expectancy) on page 75 of Publication 590. Determine the distribution period as follows:

SPOUSE AS SOLE DESIGNATED BENEFICIARY. The distribution period
is the divisor listed in the table next to the spouse's age
(as of the spouse's birthday in 2001 ). If the owner died
before the year in which he or she attained age 70 1/2,
distributions to the spouse need not begin until the year in
which the owner would have attained age 70 1/2.

OTHER DESIGNATED BENEFICIARY. The distribution period is the
divisor listed in the table next to the beneficiary's age (as
of his or her birthday in the year following the year of the
owner's death), reduced by one for each elapsed year since the
year following the owner's death.

IF THE OWNER'S BENEFICIARY IS NOT AN INDIVIDUAL. Determine the minimum required distribution for 2001 as follows:

DEATH ON OR AFTER THE REQUIRED BEGINNING DATE. Divide the
account balance at the end of 2000 by the distribution period
from Table I (Single Life Expectancy) on page 75 of
Publication 590. The distribution period is the divisor listed
next to the owner's age (as of his or her birthday in the year
of death), reduced by one for each elapsed year since the year
of death.

DEATH BEFORE THE REQUIRED BEGINNING DATE. The 5-year rule
continues to apply. Under this rule, the entire account must
be distributed by the end of the fifth year following the year
of the owner's death. No distribution is required for a year
before that fifth year. This rule may also be elected by a
beneficiary who is an individual.

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