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IRA and Pension Planning

On January 11, 2001, the Internal Revenue Service issued new IRA distribution rules in REG-13047700 and REG-13048100. These new rules completely replace the former methods for determining IRA minimum distributions, and will greatly impact anyone with an IRA.

• The new rules will be optional for the year 2001 and mandatory for the year 2002.
• Given the lower rates of withdrawal required, it is virtually certain that most individuals will have an increase in the IRA principal at the time they pass away. Since the distributions start at about 4%, most IRA owners will earn 6% to 9% and thus accumulate excess income during his or her 70s. Only in later years when the payouts increase will all income and some of the IRA principal be distributed.
  

  Example: An IRA owner earning 7% will not start to invade principal until age 85. For an 8% earnings rate, the invasion starts at age 87. A person earning 9% will not start to invade principal until age 89. Thus, the vast majority of the individuals will have from 40% to 80% more value in their IRA when they pass away then they do at age 70½. Many persons with $100,000 at age 70½ will pass away at age 90 with over $150,000 in their IRA.

For those individuals who have been fortunate in seeing substantial growth in their IRAs over the past few years, it will be important to consider methods of integrating these important assets in their estate plans, both during retirement and following the death of the participant. Beneficiary designations must be reviewed and perhaps changed to accommodate tax and distribution planning objectives. Property agreements among the spouses and disclaimer planning are among the tools that participants may wish to employ to effectuate tax and non-tax estate planning goals.

For additional information concerning IRAs, select from any of the topics below.

	New IRS Rules for IRA Distribution
	Planning tips during the life of a participant
	Estate Planning tips for beneficiary designations
	Planning Opportunities following the death of a participant
	Review an article by Times Staff Writer Kathy Kristof, who answers a number of questions concerning the new distribution rules for tax-deferred retirement plans