Were you an early retiree who took advantage of the “substantially equal periodic payments” provision in the tax code to get around the 10% early withdrawal penalty from your IRA? This special exception required that you calculate the amount that you intended to take out and stick with that plan for five years or until you are 59½, whichever would come last.
For years this concept worked out well. Recently, however, after a declining stock market, many retirees have found that their IRA balances have shrunk, but their required distributions have remained the same. Therefore, they now have to cope with the possibility of draining their accounts many years sooner than they had originally anticipated. On October 3, 2002, the IRS issued an announcement that should help this group of retirees (http://www.irs.gov/pub/irs-news/ir02-104.pdf).
The IRS will now allow you to switch, one-time, without penalty, to a method of determining the amount of your payments that is based on the value of your account as it changes from year to year. This means that you would recalculate the required payout each year by dividing the account balance for that year by the number from the chosen life expectancy table for that year (http://www.irahelp.com/pr_100302.shtml).
Whether or not this new ruling can work for you will depend on how much your IRA has dropped, your age, and how far you are from the end of your required payments. But if you are worried about depleting your retirement funds and would like help to review your new alternative, please return the enclosed coupon.