IRS rulings clarify IRA distribution rules.Practitioners are encountering clients who have unexpected substantial deferred taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . Some of this is the result of increased lifetime earnings qualifying for deferment deferment Delaying of an obligation. See Default, Medical student debt. Cf Forbearance. , but more of the surprising good fortune is coming from the present investment climate. Many retirement plans continue to grow even when the owners commence required withdrawals. This good news has a downside when the income-tax effect is considered by the ultimate beneficiary(s): the final distribution can result in bracket creep Bracket Creep A situation where inflation pushes income into higher tax brackets. The result is an increase in income taxes but no increase in real purchasing power. Notes: , which can work against the previous investment gains. Letter Rulings 9931048 and 9931049 offer guidance to soften the dilemma. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. had previously indicated that, if multiple designated beneficiaries were involved in an IRA rollover IRA rollover Reinvestment of a lump-sum distribution from an IRA when physical receipt of funds has been taken by the investor. The lump-sum distribution must be deposited in an IRA rollover account within 60 days of receipt to escape taxation. , the life of the oldest beneficiary would control the required distribution for all. Thus, because the oldest would have the shortest life expectancy, all multiple beneficiaries would have had to conform to that individual's shorter life expectancy. These letter rulings now allow each of the deceased owner's IRA rollover accounts to be separate and independent for life-measurement purposes. Thus, each beneficiary now can use his individual life expectancy table for minimum payout. The use of multiple beneficiaries in such a fact pattern works against bunching of income and bracket creep. These rulings add even more planning opportunities when IRA rollovers are substantial. FROM E. KENNETH WHITNEY, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , ANDERSON & WHITNEY, P.C., GREELEY, CO |
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