Technical Notes For Calculator

Unfortunately, qualified plan owners cannot use the new tables unless their company plan is amended.  In other words, if you are a retired employee and your money is still in the company plan, if the company does not amend their plan, then you can't use the new tables.

Determining Your Age for the Uniform Withdrawal Factor Table

The official language in the IRS publication [REG-130477-00; REG-130481-00] is as follows:

Section 1.401(a)(9)-5, "...the employee's age as of the employee's birthday in the relevant distribution calendar year.

What this means is:
Your age, for the purposes of the “Uniform Withdrawal Factor Table”, is your age as of December 31, 2005.

The source material for our table can be found in:
IRS Publication 590 Appendix E, "Table for Determining Applicable Divisor for MDIB", which is based on Table VI of Internal Revenue Service Regulation Section 1.72-9 by applying the minimum distribution requirement rules under Regulation 1.401(a)(9)-1.

Calculator Limitations

The calculator and “Uniform Withdrawal Factor” table assume the interchangeability of IRAs and qualified plans. Qualified plan participants, however, cannot use the new rules until their plan is amended at the company level.

The calculator does not provide an accurate number for cases where:

• no beneficiary is named,

• a spouse more than 10 years younger than the participant is named.

Nor does it apply for:

• inherited IRA distribution calculations,

• "grandfathered", or pre-1987, 403(b) money,  or

• individuals who have deferred taking minimum distributions because they are still working.

Required Beginning Dates

The IRS rules state that the required beginning date for distributions is “April 1 of the calendar year following the year in which the employee attains the age 70½ .”  Depending on which half of the year the participant's birthday falls in, that six-month marker determines when the participant must begin taking distributions.

Although taking a distribution immediately upon turning 70 ½ is not required—the participant has the option of waiting until his/her required beginning date and taking two distributions during that year (one prior to April 1 and one before December 31)—for tax purposes, most advisors recommend that the participant take his/her first distribution before December 31 of the year he/she turns age 70 ½.

Timing the Distribution

Participants born between January 1, 1934 and June 30, 1934 will have to take one distribution in 2004 and one in 2005, or two distributions in 2005 if he/she failed to take a distribution in 2004.  If the participant failed to take a distribution in 2004, the first distribution in the year 2005 would have to be taken prior to April 1, 2005 (in effect for what should have taken in the year 2004) and the second distribution will have to be taken by December 31, 2005.

A participant born between July 1, 1934 and June 30, 1935 will reach 70 ½ during 2005.  Technically, he/she could delay taking the first required minimum distribution until April 1, 2006.  The rule was and remains that the required beginning date for taking minimum required distributions is April 1 of the year following the year the participant turns 70 ½.  However, if a participant was born between July 1, 1934 and June 30, 1935 and waits until 2006 for his/her first distribution, then he/she must take two distributions in 2006.  The first distribution would be due before April 1, 2006, and the second distribution would be due by December 31, 2006.  For tax purposes, most advisors would recommend taking the first distribution in 2005. Annual minimum distributions would continue for the rest of the participant's life.

For participants born July 1, 1935 or afterwards, there is no minimum required distribution for 2005. And, unless the participant needs the money or is pursuing certain complex income tax or estate plan strategies, he/she is better off leaving the money in the IRA and taking the first minimum required distribution when required in 2006 or later.  To avoid bumping income levels up to the next tax bracket, many participants born between July 1, 1935 and December 31, 1935 should take one distribution in 2006 and one in 2007.

Reference Material

Internal Revenue Service [REG-130477-00; REG-130481-00]

The Code sections which were amended were 26 USC 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3) and 4974.