Running the retirement gauntlet

With memories of Woodstock fading fast and with age 55 just around the corner, retirement is bearing down on Baby Boomers like "a darkness at the edge of town."

Participation in employer-sponsored pension and 401(k) plans, savings in tax-advantaged IRAs, and the bull market of the 1990s have combined to help allow many Boomers to successfully complete the accumulation phase of the retirement gauntlet. What remains could be the distribution challenge.

Those approaching retirement may be faced with a mind-boggling set of decisions concerning distribution of qualified plan and IRA assets. In fact, in its training materials for people studying to become Certified Financial Planners, the American College lists 22 "Issues and Decisions at Retirement."

These decisions include:

-- whether benefits should be received as an annuity or a lump sum;

-- whether lump sum distributions should be rolled into an IRA;

-- when should distributions begin;

-- what is the minimum required distribution; and

-- who should be the beneficiary of qualified plan and IRA benefits following the participant's death.

For many retirees with significant assets in qualified plans and IRAs, the game usually becomes one of how to minimize distributions for the longest period of time. After all, asses left untouched in these plans, continue to grow tax-deferred.

Until recently, decision-making was complicated by IRS rules requiring irrevocable choices at retirement as to beneficiary and type of distribution. Furthermore, calculation of the annual minimum required distribution was so complex that it often necessitated the combined brainpower of a tax lawyer, accountant, and licensed financial professional.

Recently proposed regulations make running the retirement gauntlet easier than in the past. Under the proposed regulations the timing of when distributions must begin has not changed. IRA distributions may still be delayed until April 1 of the year following the year in which the participant reaches age 70 1/2. Employees who are not principal owners of the company may delay distributions of employer-sponsored plans until April 1 of the year following the year of retirement if they work beyond age 70 1/2.

However, under the proposed regulations, determination of the minimum required distribution is greatly simplified. If you can consult a table and divide your plan's account balance by the figure indicated for your attained age, you'll come up with the correct answer. The divisor reflects life expectancy and provides a more hopeful perspective than in the past. Under the new table, the divisor for a male age 70 is 26.2 compared to 16 under the old rules, thus reducing the amount of the required distribution.

Example: Charlie is age 71. His IRA account balance at the end of the preceding year was $200,000. The first year's minimum distribution is $200,000/25.3, or $7,905.

The new uniform table eliminates one of the more difficult choices of the past-whether to recalculate the minimum distribution each year, based on life expectancy at the current attained age. Under the new regulations, the divisor is simply the figure indicated in the table for the attained age.

Although it is expected that the proposed regulations will be finalized shortly, the details are still being sorted out. You'll want to consult your tax and or legal advisor as to their effective date and the implications for your specific situation. Keep in mind that issues of asset reallocation, selection of assets to provide retirement income, and coordination of retirement planning with estate planning are not resolved by the proposed regulations.

But, just in the nick of time for the Baby Boomers, the pain of the retirement gauntlet has been eased.

Sharon Stanley is a representative of The Prudential Insurance Co. of America in Cape Girardeau. (334-2603)