Saturday, July 22, 2000

Savvy Strategies

Decision can slow big IRA payouts

        Problem: You're about the turn 701/2 and start retirement plan distributions. Strategy: Slow down those IRA distributions.

        Paul J. Kellogg, director of estate and business planning at Northwestern Mutual in Cincinnati, says that you are required to make an irrevocable election on how to take distributions from qualified plans when you turn 701/2. But the surge in the stock market has created large retirement plan balances (over $1 million), and you may not need or want to take the large distributions required under traditional approaches.

        The traditional approach has been to name your spouse as beneficiary of your qualified plan and to elect to take distributions over your joint life expectancy (20 years for two 70-year-olds). This means that in the first year you would be required to take a $50,000 distribution taxed as ordinary income.

        So you may want to name a nonspouse, such as a child, as the beneficiary of part of your retirement plan to slow down your required distributions and provide more estate planning opportunities.

        Because of certain IRS rules, a nonspouse beneficiary is considered to be only 10 years younger than the retirement plan owner regardless of his or her actual age. So the life expectancy of you and your nonspouse beneficiary is now 26 years instead of 20 years. This reduces the first distribution from your $1 million IRA to $38,461.

        Plus, upon your death, your nonspouse beneficiary has the opportunity to slow the distributions even further by electing to take the remaining distributions over his or her actual life expectancy, less the number of years you received distributions. This would allow more time for the assets to compound tax-free.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique strategies with Enquirer readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati 45202 or e-mail


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