New
Rules Permit Change in IRA Distribution Amount
Did your
IRA lose value?
The recent losses
experienced in the stock market have caused many of you to notice a
significant reduction in the value of your retirement accounts. A new
ruling will help you preserve your retirement savings when there is an
unexpected drop in your account. If you began receiving fixed payments
from your IRA or retirement plan based on the value of your account at the
time you started receiving payments, you may now switch, without penalty,
to a method of determining the amount of your payments based on the value
of your account as it changes from year to year.
Generally, you
are subject to an extra 10% tax (in addition to regular income tax) on
amounts withdrawn from your IRA or employer-sponsored individual account
plans prior to reaching age 59 1/2. An exception to that tax is when you
take distributions as part of a series of substantially equal periodic
payments over your life expectancy or the joint life expectancies of you
and your beneficiary. Typically, there are three methods for satisfying
the "substantially equal periodic payment" exception.
Two of the methods
result in a fixed amount that is required to be distributed and could
result in the premature depletion of your account in the event that the
value of the assets in the account suffers a decline in market value. The
new rule permits you to change from a method for determining the payments
under which the amount is fixed, to the third method, where the amount
changes from year to year based on the value in the account from which the
distributions are being made.
