CHAPTER 6--REQUIRED MINIMUM DISTRIBUTIONS- …

1 EMPLOYEE PLANS CPE TECHNICAL TOPICS FOR 2002 Page 6-1 Training 4213-021 (Rev. April 2002) CHAPTER 6--REQUIRED MINIMUM DISTRIBUTIONS- EXPLANATION OF OLD AND NEW REGULATIONS by Sharon Petshaft, (Northeast) Steve Linder and Al Reich (Reviewers) INTERNAL REVENUE SERVICE TAX EXEMPT AND GOVERNMENT ENTITIES TABLE OF CONTENTS SECTION 1 INTRODUCTION ---------------------------------------- ---------------------------------------- ---- 3 2001 proposed regulations (A)(9) ---------------------------------------- ------------------------------------- 4 SECTION 2 DISTRIBUTIONS DURING PARTICIPANT S LIFE ------------------------------------- 6 required BEGINNING DATE EFFECTIVE AFTER SJBPA ---------------------------------------- --------------------- 6 DISTRIBUTIONS FROM INDIVIDUAL ACCOUNTS-------------------------------- --------------------------------------- 8 ANNUITY PAYMENT DISTRIBUTIONS--------------------------- ---------------------------------------- --------------- 12 SECTION 3 DISTRIBUTIONS

2 AFTER DEATH ---------------------------------------- ----------------15 PARTICIPANT DIES BEFORE THE RBD ---------------------------------------- --------------------------------------- 15 5-YEAR RULE------------------------------------ ---------------------------------------- --------------------------------- 15 LIFE EXPECTANCY RULE------------------------------------ ---------------------------------------- ------------------- 15 PARTICIPANT DIES ON OR AFTER THE RBD------------------------------------- ----------------------------------- 18 DESIGNATED BENEFICIARY ---------------------------------------- ---------------------------------------- ---- 19 SECTION 4 ROLLOVERS AND TRANSFERS ---------------------------------------- -----------------24 ROLLOVERS------------------------------- ---------------------------------------- --------------------------------------- 24 TRANSFERS------------------------------- ---------------------------------------- ---------------------------------------- 24 SECTION 5 SPECIAL RULES

3 ---------------------------------------- --------------------------------------26 MORE THAN ONE PLAN------------------------------------ ---------------------------------------- ---------------------- 26 SEPARATE ACCOUNTS-------------------------------- ---------------------------------------- --------------------------- 26 SPOUSAL CONSENT--------------------------------- ---------------------------------------- ----------------------------- 26 ANNUITY CONTRACTS------------------------------- ---------------------------------------- --------------------------- 26 403(B)

4 PLANS, IRAS AND 457 PLANS----------------------------------- ---------------------------------------- ------ 26 TEFRA ELECTION-------------------------------- ---------------------------------------- --------------------------------- 27 DETERMINATION TIPS ---------------------------------------- ---------------------------------------- -----------28 required PROVISIONS------------------------------ ---------------------------------------- --------------------------- 28 OPTIONAL PROVISIONS------------------------------ ---------------------------------------- ---------------------------- 28 EXAMINATION TIPS ---------------------------------------- ---------------------------------------- ---------------28 TABLE I ---------------------------------------- ---------------------------------------- ---------------------------------30 distribution PERIOD- ---------------------------------------- ---------------------------------------- ---------30 EMPLOYEE PLANS CPE TECHNICAL TOPICS FOR 2002 Page 6-2 Training 4213-021 (Rev.)

5 April 2002) PROP. REG. (A)(9)-5 (A-4)----------------------------------- ---------------------------------------- --------30 TABLE II-------------------------------------- ---------------------------------------- ----------------------------------31 APPLICABLE PERCENTAGE ---------------------------------------- ---------------------------------------- ----31 PROP. REG. (A)(9) 6 (A-2)----------------------------------- ---------------------------------------- --------31 2001 PROPOSED REGULATIONS ---------------------------------------- ---------------------------------------3 2 FLOW CHART ---------------------------------------- ---------------------------------------- ------------------------32 DISTRIBUTIONS BEFORE DEATH ---------------------------------------- -------------------------------------32 TIMING.

6 BY required BEGINNING DATE, DISTRIBUTE EITHER ENTIRE INTEREST OR COMMENCE DISTRIBUTIONS OVER A PERIOD (AS DEFINED) -------------------------------------- 32 AMOUNT: ACCOUNT BALANCE / distribution PERIOD ---------------------------------------- 32 DEATH ON OR AFTER required BEGINNING DATE ---------------------------------------- ---------32 DEATH BEFORE required BEGINNING DATE ---------------------------------------- -----------------33 DEATH BEFORE required BEGINNING DATE ---------------------------------------- -----------------34 AMOUNT.

7 LIFE EXPECTANCY RULE ---------------------------------------- -------------------------------- 34 distribution PERIOD = REMAINING LIFE EXPECTANCY OF DESIGNATED BENEFICIARY----------------------------- ---------------------------------------- ---------------------------------------- ---------------- 34 EMPLOYEE PLANS CPE TECHNICAL TOPICS FOR 2002 Page 6-3 Training 4213-021 (Rev. April 2002) Section 1 Introduction The required MINIMUM distribution rules of Internal Revenue Code section 401(a)(9) apply to all pension, profit-sharing and stock bonus plans qualified under section 401(a), IRAs, section 403(b) and section 457 plans.

8 Section 401(a)(9) provides qualification rules that govern when and how benefit payments must be paid before and after the participant s death. A MINIMUM amount must distributed from the accounts of plan participants and contract owners. The purpose of this lesson is to review the basic rules regarding MINIMUM distributions and to highlight the changes to section 401(a)(9) effective January 1, 2002. Prior to the new proposed regulations published in the Federal Register on January 17, 2001, the rules for calculating MINIMUM distributions were found in the 1987 proposed regulations.

9 For more information on the MINIMUM required distribution rules as amended by the Small Business Job Protection Act of 1996 effective for years beginning after December 31, 1996, see CPE Technical Topics for 1999. If less than the required amount is distributed, an excise tax is applied pursuant to section 4974. The excise tax is equal to 50% of the difference between the amount distributed and the amount required to be distributed. Failures to comply with section 401(a)(9), for qualified plans and 403(b) plans, may be corrected through the Employee Plans Compliance Resolution System (EPCRS).

10 See Rev Proc 2001-17 (2000-7 518). Section 401(a)(9) was first effective in 1984. The amendments made by DEFRA (The Deficit Reduction Act of 1984) repealed the section 401(a)(9) legislation enacted by TEFRA (The Tax Equity and Fiscal Responsibility Act of 1984). The next significant legislation to section 401(a)(9), effective after 1988, was enacted by TRA 86 (The Tax Reform Act of 1986) and proposed regulations were published in the Federal Register on July 27, 1987 (referred to as 1987 proposed regulations ). At that time, the definition of required beginning date was limited to not later than the April 1 of the calendar year following the calendar year in which the employee attains age 70.