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Your IRA and 'joint life'
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July 5, 2000: 1:12 p.m. ET
The choices you make are the key to making the most of your IRA plan
By Ed Slott
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NEW YORK (CNNfn) - One of the most important decisions you'll make with your IRA is to elect the right life expectancy.
IRA owners must choose a life expectancy to calculate their minimum required distributions. But most people are unaware they can use two life expectancies.
There are three choices every IRA owner must make: The selection of your IRA beneficiary; choosing a life expectancy and a distribution method. In last week's column, we covered the importance of picking a beneficiary. Next week, we'll cover the distribution method.
 It is to your benefit to choose joint life expectancy, where you can figure distributions based on both your life and the life of your designated beneficiary. This will allow you to withdraw the lowest possible amount and let your IRA live on for a longer period of time after your death. An IRA owner should always choose joint life expectancy.
If you choose nothing or ignore the issue, you become subject to the default method of the financial institution that is holding your IRA, usually a bank, broker or mutual fund company.
If the financial institution's default is single life (and some major institutions do default to single life), you and your IRA beneficiaries will be stuck with a shorter payout period. This means that your IRA will be paid out faster during your life and after your death, resulting in higher taxes each year because the distributions will be larger. Also, your IRA will end early, losing out on possibly decades of further tax deferral.
The IRS has taken a new position that can bail you and your IRA beneficiaries out, even if you elected the wrong life expectancy. Most IRA owners and beneficiaries are unaware that the new IRA-friendly IRS is very forgiving.
There have been several recent IRS rulings that have allowed beneficiaries to withdraw over a joint life expectancy even though the IRA owners that they inherited from -- their parents -- elected single life.
All of these rulings that allowed a joint life were based on the fact that a designated beneficiary was timely named. Timely, in IRA terms, means by your Required Beginning Date (RBD), which is April 1 of the year following the year an IRA owner turns 70 1/2 years old. Don't wait until you are close to 70 1/2, because you could die before then.
Click here for Ed Slott's recent column on the estate tax repeal that generated a lot of e-mail from readers.
A designated beneficiary is a person (and a qualifying trust) with a life expectancy as opposed to your estate, a charity and certain other trusts that have no life expectancy.
Even if you have no friends, elect joint life because it results in lower annual required IRA distributions, which in turn means lower taxes each year for you. Who wouldn't want that? Even if you are thinking that you want to elect single life because you may need to withdraw more each year as you get older, you should still elect joint life.
Under a joint life election, you can always withdraw more than your required amount. If you need more you simply withdraw more and pay tax on more, but you are not locked in to a larger annual distribution as you would be if you elected single life.
You should go over every IRA distribution method election form on every IRA you have and make sure you have elected a joint life expectancy. Even if you are past your RBD, and you are already taking your required withdrawals under a single life election, you should still go back and check to see if you have named a designated beneficiary.
If you can prove that you have named a designated beneficiary before your RBD, then even if you have elected single life, you should still change to a joint life election now.
This will lower future withdrawals and the taxes on those withdrawals. The recent IRS rulings I referred to are all taking the position that if you timely named a designated beneficiary, then in effect, you are entitled to a joint life election even if you elected single life and have been taking larger required withdrawals based on that single life election.
This information may be worth a fortune to you and your IRA beneficiaries -- but only if you act on it now! 
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