Certain clients can delay their required IRA distributions a little longer and pay them out with less onerous tax consequences according to a March 11th IRS Private Letter Ruling. The ruling clarified how required minimum distribution rules apply at retirement to profit-sharing plan participants who made grandfathered "242(b)(2) elections."

The 242(b)(2) election was part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which changed the rules applicable to required minimum distributions for plan participants who also owned more than 5% of the business. Before TEFRA, required minimum distributions could be deferred until the later of age 70-1/2 or retirement. However, under TEFRA rules, required minimum distributions must start at age 70-1/2 for plan participants that own more than 5% of the business, regardless of whether they are still working for the firm. Extension of the distribution date beyond age 70-1/2 is only allowed for those who own less than 5% of the firm.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.