Q. What is the deal with the new rules about IRA minimum distributions?

A. This was a confusing issue even for tax professionals. We'll do our best to clarify it here.

On January 17, 2001, the Internal Revenue Service (IRS) distributed proposed regulations related to required minimum distributions from Individual Retirement Accounts (IRAs) and other qualified plans. The proposed changes attempt to simplify the current proposed regulations from 1987, although their level of success is debatable.

First, it is important to remember that many proposed regulations require several years of public comment and revision prior to their publication as final regulations. Some proposed regulations are ultimately withdrawn by the IRS and never make it to the final publication stage. This means that the current proposed regulations may not come into effect at all, or may be further modified before they are made final.

With that in mind, we can sort out some confusion regarding the "effective date" of the new proposed changes. The IRS originally proposed that the new rules would become effective after 2001, but suggested that taxpayers could elect to use them for determining required minimum distributions during calendar year 2001. In other words, a taxpayer could elect to use the new rules at any time during 2001, although they would not become required until after December 31, 2001.

The IRS then clarified its guidance in Announcement 2001-18, 2001-10, I.R.B. The new rules may be used during 2001 with the following exception: they may not be used with reference to tax year 2000 minimum distributions, which are required to be made by April 1, 2001. To determine those distributions, the taxpayer must still use the prior proposed 1987 era regulations. Presumably, distributions relative to tax year 2001, particularly those taken after April 1, 2001, may be determined using the new proposed regulations.

Furthermore, the IRS has warned IRA plan sponsors not to amend their plan documents until the publication of final regulations. The IRS also will not issue model IRA plan documents on the basis of the January 2001 publication of these proposed regulations.

Although this makes it difficult for the taxpayer to plan future distributions, it highlights the need for taxpayers to keep in touch with their CPA or professional financial advisor to handle these tricky regulations changes.

If you wish to do more in-depth reading about these proposed regulations, including revised tables, they can be found in their entirety, online:

1. Go to www.access.gpo.gov/su_docs/fedreg/a010117c.html (this is a very large page).

2. Scroll down to "Internal Revenue Service."

3. Under "Internal Revenue Service," choose the section called "Income Taxes." Under that section, find the item labeled "Retirement Plans; required distributions, 3928-3954 [01-304]."

4. Next to this item, choose to view either the [TEXT] version or [PDF] version (you need Adobe Reader to view a PDF file).

5. Be patient, because this is a very large file. Your ability to access it will depend on your system and Internet connection.

Readers will soon see that, while some small steps were taken in reducing this overly complex area, there is much more work to be done prior to rendering the issue intelligible to the taxpayer.