IRS To Allow Onetime Change In IRA Periodic Payment Schedule.
Rev. Rul. 2002-62; 2002-2 C.B. 710
- Institutional AuthorsInternal Revenue Service
- Cross-ReferenceFor a summary of Notice 89-25, 1989-1 C.B. 662, see Tax Notes, March
- Code Sections
- Subject Areas/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2002-22476 (8 original pages)
- Tax Analysts Electronic Citation2002 TNT 193-7
Modified and Superseded by Notice 2022-6
Rev. Rul. 2002-62
SECTION 1. PURPOSE AND BACKGROUND
.01 The purpose of this revenue ruling is to modify the provisions of Q&A-12 of Notice 89-25, 1989-1 C.B. 662, which provides guidance on what constitutes a series of substantially equal periodic payments within the meaning of § 72(t)(2)(A)(iv) of the Internal Revenue Code from an individual account under a qualified retirement plan. Section 72(t) provides for an additional income tax on early withdrawals from qualified retirement plans (as defined in § 4974(c)). Section 4974(c) provides, in part, that the term "qualified retirement plan" means (1) a plan described in § 401 (including a trust exempt from tax under § 501(a)), (2) an annuity plan described in § 403(a), (3) a tax-sheltered annuity arrangement described in § 403(b), (4) an individual retirement account described in § 408(a), or (5) an individual retirement annuity described in § 408(b).
.02 (a) Section 72(t)(1) provides that if an employee or IRA owner receives any amount from a qualified retirement plan before attaining age 59 1/2, the employee's or IRA owner's income tax is increased by an amount equal to 10-percent of the amount that is includible in the gross income unless one of the exceptions in § 72(t)(2) applies.
(b) Section 72(t)(2)(A)(iv) provides, in part, that if distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancy) of the employee and beneficiary, the tax described in § 72(t)(1) will not be applicable. Pursuant to § 72(t)(5), in the case of distributions from an IRA, the IRA owner is substituted for the employee for purposes of applying this exception.
(c) Section 72(t)(4) provides that if the series of substantially equal periodic payments that is otherwise excepted from the 10-percent tax is subsequently modified (other than by reason of death or disability) within a 5-year period beginning on the date of the first payment, or, if later, age 59 1/2, the exception to the 10- percent tax does not apply, and the taxpayer's tax for the year of modification shall be increased by an amount which, but for the exception, would have been imposed, plus interest for the deferral period.
(d) Q&A-12 of Notice 89-25 sets forth three methods for determining whether payments to individuals from their IRAs or, if they have separated from service, from their qualified retirement plans constitute a series of substantially equal periodic payments for purposes of § 72(t)(2)(A)(iv).
(e) Final Income Tax Regulations that were published in the April 17, 2002, issue of the Federal Register under § 401(a)(9) provide new life expectancy tables for determining required minimum distributions.
SECTION 2. METHODS
.01 General rule. Payments are considered to be substantially equal periodic payments within the meaning of § 72(t)(2)(A)(iv) if they are made in accordance with one of the three calculations described in paragraphs (a) - (c) of this subsection (which is comprised of the three methods described in Q&A-12 of Notice 89-25).
(a) 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. If this method is chosen, there will not be deemed to be a modification in the series of substantially equal periodic payments, even if the amount of payments changes from year to year, provided there is not a change to another method of determining the payments.
(b) The fixed amortization method. The annual payment for each year is determined by amortizing in level amounts the account balance over a specified number of years determined using the chosen life expectancy table and the chosen interest rate. Under this method, the account balance, the number from the chosen life expectancy table and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year.
(c) The fixed annuitization method. The annual payment for each year is determined by dividing the account balance by an annuity factor that is the present value of an annuity of $1 per year beginning at the taxpayer's age and continuing for the life of the taxpayer (or the joint lives of the individual and beneficiary). The annuity factor is derived using the mortality table in Appendix B and using the chosen interest rate. Under this method, the account balance, the annuity factor, the chosen interest rate and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year.
.02 Other rules. The following rules apply for purposes of this section.
(a) Life expectancy tables. The life expectancy tables that can be used to determine distribution periods are: (1) the uniform lifetime table in Appendix A, or (2) the single life expectancy table in § 1.401(a)(9)-9, Q&A-1 of the Income Tax Regulations or (3) the joint and last survivor table in § 1.401(a)(9)-9, Q&A-3. The number that is used for a distribution year is the number shown from the table for the employee's (or IRA owner's) age on his or her birthday in that year. If the joint and survivor table is being used, the age of the beneficiary on the beneficiary's birthday in the year is also used. In the case of the required minimum distribution method, the same life expectancy table that is used for the first distribution year must be used in each following year. Thus, if the taxpayer uses the single life expectancy table for the required minimum distribution method in the first distribution year, the same table must be used in subsequent distribution years.
(b) Beneficiary under joint tables. If the joint life and last survivor table in §1.401(a)(9)-9, Q&A-3, is used, the survivor must be the actual beneficiary of the employee with respect to the account for the year of the distribution. If there is more than one beneficiary, the identity and age of the beneficiary used for purposes of each of the methods described in section 2.01 are determined under the rules for determining the designated beneficiary for purposes of § 401(a)(9). The beneficiary is determined for a year as of January 1 of the year, without regard to changes in the beneficiary in that year or beneficiary determinations in prior years. For example, if a taxpayer starts distributions from an IRA in 2003 at age 50 and a 25-year-old and 55-year-old are beneficiaries on January 1, the 55-year-old is the designated beneficiary and the number for the taxpayer from the joint and last survivor tables (age 50 and age 55) would be 38.3, even though later in 2003 the 55-year- old is eliminated as a beneficiary. However, if that beneficiary is eliminated or dies in 2003, under the required minimum distribution method, that individual would not be taken into account in future years. If, in any year there is no beneficiary, the single life expectancy table is used for that year.
(c) Interest rates. The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid-term rate (determined in accordance with § 1274(d) for either of the two months immediately preceding the month in which the distribution begins). The revenue rulings that contain the § 1274(d) federal mid-term rates may be found at www.irs.gov\tax_regs\fedrates.html.
(d) Account balance. The account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances. For example, for an IRA with daily valuations that made its first distribution on July 15, 2003, it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the IRA from December 31, 2002 to July 15, 2003. For subsequent years, under the required minimum distribution method, it would be reasonable to use the value either on the December 31 of the prior year or on a date within a reasonable period before that year's distribution.
(e) Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable.
.03 Special rules. The special rules described below may be applicable.
(a) Complete depletion of assets. If, as a result of following an acceptable method of determining substantially equal periodic payments, an individual's assets in an individual account plan or an IRA are exhausted, the individual will not be subject to additional income tax under § 72(t)(1) as a result of not receiving substantially equal periodic payments and the resulting cessation of payments will not be treated as a modification of the series of payments.
(b) One-time change to required minimum distribution method. An individual who begins distributions in a year using either the fixed amortization method or the fixed annuitization method may in any subsequent year switch to the required minimum distribution method to determine the payment for the year of the switch and all subsequent years and the change in method will not be treated as a modification within the meaning of § 72(t)(4). Once a change is made under this paragraph, the required minimum distribution method must be followed in all subsequent years. Any subsequent change will be a modification for purposes of § 72(t)(4).
SECTION 3. EFFECTIVE DATE AND TRANSITIONAL RULES
The guidance in this revenue ruling replaces the guidance in Q&A-12 of Notice 89-25 for any series of payments commencing on or after January 1, 2003, and may be used for distributions commencing in 2002. If a series of payments commenced in a year prior to 2003 that satisfied § 72(t)(2)(A)(iv), the method of calculating the payments in the series is permitted to be changed at any time to the required minimum distribution method described in section 2.01(a) of this guidance, including use of a different life expectancy table.
SECTION 4. EFFECT ON OTHER DOCUMENTS
Q&A-12 of Notice 89-25 is modified.
SECTION 5. REQUEST FOR COMMENTS
The Service and Treasury invite comments with respect to the guidance provided in this revenue ruling. Comments should reference Rev. Rul. 2002-62.
Comments may be submitted to CC:ITA:RU (Rev. Rul. 2002-62, room 5226, Internal Revenue Service, POB 7604 Ben Franklin Station, Washington, DC 20044. Comments may be hand delivered between the hours of 8:30 a.m. and 5 p.m. Monday to Friday to: CC:ITA:RU (Rev. Rul. 2002-62), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, D.C. Alternatively, comments may be submitted via the Internet at Notice.Comments@irscounsel.treas.gov. All comments will be available for public inspection and copying.
Drafting Information
The principal author of this revenue ruling is Michael Rubin of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, please contact Mr. Rubin at 1-202-283-9888 (not a toll-free number).
Appendix A
Uniform Lifetime Table
_________________________________________________________________________
Taxpayer's Age Life Expectancy Taxpayer's Age Life Expectancy
_________________________________________________________________________
10 86.2 63 33.9
11 85.2 64 33.0
12 84.2 65 32.0
13 83.2 66 31.1
14 82.2 67 30.2
15 81.2 68 29.2
16 80.2 69 28.3
17 79.2 70 27.4
18 78.2 71 26.5
19 77.3 72 25.6
20 76.3 73 24.7
21 75.3 74 23.8
22 74.3 75 22.9
23 73.3 76 22.0
24 72.3 77 21.2
25 71.3 78 20.3
26 70.3 79 19.5
27 69.3 80 18.7
28 68.3 81 17.9
29 67.3 82 17.1
30 66.3 83 16.3
31 65.3 84 15.5
32 64.3 85 14.8
33 63.3 86 14.1
34 62.3 87 13.4
35 61.4 88 12.7
36 60.4 89 12.0
37 59.4 90 11.4
38 58.4 91 10.8
39 57.4 92 10.2
40 56.4 93 9.6
41 55.4 94 9.1
42 54.4 95 8.6
43 53.4 96 8.1
44 52.4 97 7.6
45 51.5 98 7.1
46 50.5 99 6.7
47 49.5 100 6.3
48 48.5 101 5.9
49 47.5 102 5.5
50 46.5 103 5.2
51 45.5 104 4.9
52 44.6 105 4.5
53 43.6 106 4.2
54 42.6 107 3.9
55 41.6 108 3.7
56 40.7 109 3.4
57 39.7 110 3.1
58 38.7 111 2.9
59 37.8 112 2.6
60 36.8 113 2.4
61 35.8 114 2.1
62 34.9 115 1.9
_________________________________________________________________________
Mortality Table Used to Formulate the Single Life Table in
§ 1.401(a)(9)-9, Q&A-1
_______________________________________________
age qx lx
_______________________________________________
0 0.001982 1000000
1 0.000802 998018
2 0.000433 997218
3 0.000337 996786
4 0.000284 996450
5 0.000248 996167
6 0.000221 995920
7 0.000201 995700
8 0.000222 995500
9 0.000241 995279
10 0.000259 995039
11 0.000277 994781
12 0.000292 994505
13 0.000306 994215
14 0.000318 993911
15 0.000331 993595
16 0.000344 993266
17 0.000359 992924
18 0.000375 992568
19 0.000392 992196
20 0.000411 991807
21 0.000432 991399
22 0.000454 990971
23 0.000476 990521
24 0.000501 990050
25 0.000524 989554
26 0.000547 989035
27 0.000567 988494
28 0.000584 987934
29 0.000598 987357
30 0.000608 986767
31 0.000615 986167
32 0.000619 985561
33 0.000622 984951
34 0.000625 984338
35 0.000629 983723
36 0.000636 983104
37 0.000657 982479
38 0.000696 981834
39 0.000749 981151
40 0.000818 980416
41 0.000904 979614
42 0.001007 978728
43 0.00113 977742
44 0.00127 976637
45 0.001426 975397
46 0.001597 974006
47 0.001783 972451
48 0.001979 970717
49 0.002187 968796
50 0.002409 966677
51 0.002646 964348
52 0.002896 961796
53 0.003167 959011
54 0.003453 955974
55 0.003754 952673
56 0.004069 949097
57 0.004398 945235
58 0.004736 941078
59 0.005101 936621
60 0.005509 931843
61 0.005975 926709
62 0.006512 921172
63 0.007137 915173
64 0.007854 908641
65 0.008670 901505
66 0.009591 893689
67 0.010620 885118
68 0.011778 875718
69 0.013072 865404
70 0.014519 854091
71 0.016139 841690
72 0.017950 828106
73 0.019958 813241
74 0.022198 797010
75 0.024699 779318
76 0.027484 760070
77 0.030582 739180
78 0.034010 716574
79 0.037807 692203
80 0.042010 666033
81 0.046652 638053
82 0.051766 608287
83 0.057392 576798
84 0.063583 543694
85 0.070397 509124
86 0.077892 473283
87 0.086124 436418
88 0.095238 398832
89 0.105068 360848
90 0.115518 322934
91 0.126487 285629
92 0.137876 249501
93 0.149419 215101
94 0.161176 182961
95 0.173067 153472
96 0.185008 126911
97 0.196920 103431
98 0.210337 83063.4
99 0.224861 65592.1
100 0.241017 50843.0
101 0.259334 38589.0
102 0.280356 28581.6
103 0.303142 20568.6
104 0.329482 14333.4
105 0.359886 9610.80
106 0.394865 6152.01
107 0.434933 3722.80
108 0.480599 2103.63
109 0.532376 1092.63
110 0.590774 510.940
111 0.656307 209.090
112 0.729484 71.8628
113 0.810817 19.4400
114 0.900819 3.67772
115 1.000000 0.364760
_______________________________________________
- Institutional AuthorsInternal Revenue Service
- Cross-ReferenceFor a summary of Notice 89-25, 1989-1 C.B. 662, see Tax Notes, March
- Code Sections
- Subject Areas/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2002-22476 (8 original pages)
- Tax Analysts Electronic Citation2002 TNT 193-7