PLRs 199951053 & 199915063--How are you presenting these to client

[Guest danmar]

I'm looking for feedback from other consultants or IRA custodians about how you are presenting PLRs 199951053 & 199915063 with clients.

Basically, these PLRs allow a non-spouse IRA bene who was properly named as of an IRA owner's RBD date to use a joint RMD calculation after the death of the IRA owner even if the IRA owner had elected a single life calculation.

Currently, we are still telling clients that 2 PLRs don't make a rule and that they should stick with the consequences of the IRA owner's elected method or seek tax advice or their own PLR if they'd like to use a jt calc. Is any other firm taking a different approach? At what point do you think a series of PLRs becomes a rule that can be generally relied upon?

[Guest P A Weick]

I had thought the proposed 401(a)(9)regulations indicate that an IRA owner who had designated a beneficiary at the time for required minimum distributions had as the time period over which to calculate his or her RMD the joint lives of the owner and the designated beneficiary. If he or she did not have a designated beneficiary the RMD time period was a single life. That is the "minimum" required by law. A person desiring to take more could, and could calculate it over his single life recalculated or otherwise, but it was an election that did not change the time period for calculating RMD set out in the proposed regulations. Thus, these rulings to my mind only confirm what the proposed regulations (carefully read) say.

[Bruce Steiner]

Danmar: would you be good enough to tell us the name of your institution, so we can point out to our clients this problem with your institution?

Are there *any* financial institutions that are easy to deal with for IRAs?

There continues to be a marketing opportunity for anyone connected with a financial institution to attract IRA business.

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL

[Guest danmar]

Mr. Steiner--I do not beleive that there is any "problem" with my institution, it's just a question of updating our training and communication material around this issue. Any of our clients wanting to take advantage of these PLRs can do so. In fact, our legal department has recently come around on this issue and we will be updating our material. I would guess that few other IRA custodians would address this particular issue on behalf of their clients. Thanks for your input.

[Bruce Steiner]

If Danmar believes his/her institution is not a problem for IRA owners, he/she should tell us the name of his/her institution, and I'm sure many attorneys will send him/her lots of business. We keep hearing so many horror stories involving IRA trustees/custodians that it would be nice to know if there is a customer-friendly one.

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL

[John Olsen]

I thought the PLRs simply interpreted the law and regs correctly. Nothing in the regs or Code suggests (to me, at least) that, if one elects to take MORE than the MRD, the baseline for "at least as rapidly as" changes from the MRD to the amount one has actually been taking. One does not, by taking MORE, waive (much less, forfeit) one's right to take over the COMBINED life expectancies of oneself and a timely designated beneficiary. As the most recent PLR states flatly, it is the fact that the participant COULD HAVE TAKEN distributions based on that JOINT life expectancy which is relevant, not whether she decided to take MORE.

Were "at least as rapidly as" to refer to the ACTUAL DISTRIUTION TAKEN, it would be literally IMPOSSIBLE to produce a schedule which would comply with "at least as rapidly as", if the "baseline" were distributions of different amounts each year. How would one extrapolate such a "schedule", in the absence of any divisors for future years - with linear regression, perhaps?

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818

[John Olsen]

Danmar:

Does your institution allow beneficiaries of an IRA to name their own beneficiaries (who will take only on the death of the accountholder, and, then, only if the primary [naming] beneficiary has predeceased)?

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818

[John Olsen]

OOPS!, that last post got garbled.

I MEANT to ask if your institution allows beneficiaries to name their own beneficiaries - where the accountholder has ALREADY died, NOT where the accountholder is still living.

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818

[Guest DAFoster]

Re 199951053 - I have not yet read the entire ruling, but I must ask, isn't it critical whether or not the IRA owner made an affirmative election at the RBD or simply did nothing, and let the min distribution calculation be governed by the IRA document. For example, lets say IRA owner names son as proper DB before RBD, but does not make any election with IRA custodian, and the IRA states that the default method of payout is single life recalc. Would the IRS conclusion in this PLR still stand? Obviously the "safe" thing to do with clients is make an affirmative election at the RBD, but what if we are in clean up mode after the RBD.

[Guest P A Weick]

The critical item is whether the account holder has designated a beneficiary or not. All else flows from that.

[John Olsen]

I believe that the PLR's language is pretty straightforward. What matters is not that the participant "elected" to have MRDs calculated on the basis of Single Life Expectancy, but, rather, that she "COULD have used" the JOINT LE of herself and the oldest beneficiary.

I have, for some time, been of the opinion that "checking the box" next to SINGLE LIFE EXPECTANCY is nothing more than a request to take LARGER THAN REQUIRED distributions. I see NO authority in the Code or Regs to suggest that, in making this "affirmative election" , one waives, much less forfeits, one's RIGHT to the Joint LE, so long as there is a designated beneficiary as of RBD.

The PLR in question would appear to say precisely that.

"At least as rapidly as" is a USELESS rule if the baseline isn't determinable. An election to take precisely one's MRD under a SINGLE LIFE EXPECTANCY is, indeed, a baseline. One can determine next year's divisor, because that SLE schedule is available.

But what if one took MORE than the JOINT LE MRD but NOT EXACTLY the Single Life LE MRD? How would one apply the "at least as rapidly" test? To apply the Single LE divisors would not be accurate. That wasn't the schedule being used. There would be no FUTURE YEAR'S DIVISORS to look to.

The problem is solved - for that scenario AS WELL AS FOR THE SINGLE LE SCENARIO, simply by appying "at least as rapidly as" to the ONE SCHEDULE WHICH BOTH MAKES SENSE AND IS EXPLICITLY GRANTED IN THE CODE AND REGS - the JOINT LE schedule, using the LE of the oldest designated beneficiary, as of RBD.

I would argue that this is what we ought to use, even in cleanup mode. Bear in mind that the relevant regs are NOT FINAL REGS. They do NOT have the FORCE OF LAW which FINAL regs do. (They have, as Natalie Choate observes, been described by one court as being nothing more than the IRS' OPINION of the law).

Absent any CODE provision clearly barring use of the Joint LE (and there is none) and absent any FINAL regs clearly barring it - one can, I believe, argue that use of the Joint LE - as used in this PLR - is a "reasonable interpretation" of the law. For the IRS to argue otherwise would be for them to argue that their own PLR was not "reasonable".

When I encountered this line of argument in Natalie Choate's all day seminar on "Life and Death Planning For Retirement Benefits" (a 6-hr audio tape set of which is available for $126 and is one of the better investments I've made recently; her web site [www.atax.plan.com]), I thought it made sense. I still do.

Of course, one test for how intelligent a person is is how much she agrees with you. [grin]

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John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818