IRS Ruling May Help Retirees

The Internal Revenue Service has issued Revenue Ruling 2002-62 that may help certain taxpayers whose retirement funds are at risk of being depleted by a drop in stock values. The ruling addresses a concern of taxpayers who are required to withdraw a fixed amount from their retirement fund and who may find they are depleting retirement funds more quickly than anticipated due to a drop in the value of their investments.

The ruling applies to taxpayers who have chosen to take distributions of substantially equal periodic payments from tax-deferred retirement savings, and these distributions are to span the life expectancy of the taxpayer. These taxpayers who have elected to withdraw a fixed amount over their life expectancy may now fear a rapid depletion of their retirement savings due to the current drop in the stock market.

This new ruling permits taxpayers who chose either a fixed amortization method or a fixed annuitization method of determining annual payments under the previous rules to make a one-time switch to the required minimum distribution method. Using the required minimum distribution method, the annual payment for each year is determined by dividing the account balance for that year by the number from the chosen life expectancy table for that year. Under this method, the account balance, the number from the chosen life expectancy table and the resulting annual payments are redetermined for each year.

Once a taxpayer chooses to change to the required minimum distribution method of determining the annual withdrawal from a retirement plan, the new method applies for all future years.

This ruling applies for all tax years beginning in 2003 and thereafter and may also be used for calculating retirement distributions in 2002.

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