The IRS has finalized and clarified -- and in some instances, improved -- the surprise regulations it proposed in early 2001 that dramatically simplified the rules requiring minimum withdrawals from tax-deferred retirement plans such as 401(k)s and from individual retirement accounts (IRAs). Known as required minimum distribution rules, these rules require owners of IRAs and retirement plan accounts to begin making lifetime minimum annual withdrawals from their accounts no later than April 1 following the year they turn 70 1/2. (The exception is for a plan sponsored by a current employer.) The final rules further affect the distribution calculation and the naming of beneficiaries of these accounts.

The biggest change involves the distribution calculation. When the IRS unexpectedly made its sweeping changes in 2001, it replaced the complicated number of options individuals had to choose from regarding the calculation of their withdrawals with a simple table known as the Uniform Table. Using the table, retirees found the "divisor" associated with their age and divided it into the amount they had in their retirement accounts at the end of the previous tax year. The result was their required minimum distribution, or RMD (technically, the RMD is calculated separately for qualified plans and for the total amount of your IRAs).

Under a mandate from Congress, the IRS has updated the 2001 divisors to take into account increased life expectancy, adding on about a year of life expectancy. The result is to make the divisors larger and the minimum withdrawals smaller, thus further stretching out retirement assets. For example, under the Uniform Table from 2001, the divisor for someone age 72 was 24.1. If they had total tax-deferred retirement accounts and IRAs valued at $300,000, the required minimum distribution was $12,448. Under the new table, the divisor is 25.6 and the RMD is $11,719. That reduces the annual minimum withdrawal by $729, which can be left in the account to further grow tax deferred.

Of course, you can withdraw at any time more than the minimum if you want or need to. But if you don't, your money can keep growing. Remember, however, that if you fail to take out at least the minimum, you are penalized 50 percent of the shortfall.

Although any account owner can use the uniform table, an account owner whose sole beneficiary spouse is younger by more than ten years can use a joint and last survivor table, which shrinks the minimum withdrawals even more. Under the final rules, the IRS has made this joint table more generous.

Another significant change concerns the naming of beneficiaries, which in turn affects the calculation of minimum distributions for your beneficiaries after your death. Under the simplified rules introduced by the IRS in 2001, account owners could change the distribution calculation by changing the beneficiaries, up to the time of the account owner's death. Furthermore, though beneficiaries couldn't be added after the owner's death, the new rules allowed already named beneficiaries (assuming you named more than one) to disclaim their inheritance, for example, as late as December 31 of the year following the year the owner died. The beneficiaries RMD was then recalculated on the life expectancies of the remaining heirs, potentially allowing them to further stretch out the life of the account.

Under the now-final rules, the December 31 date has been pushed up to September 30 of the year after the owner dies. This is designed to make it easier to properly calculate the initial minimum distribution that must be made by the end of that year.

The IRS clarified another beneficiary issue: what happens if the beneficiary of the IRA account owner dies before the September 30 date without naming a successor beneficiary? Under the proposed rules, the beneficiary's estate would have inherited and the heir of that estate would have had to empty the account faster than desired. Now the successor heir is permitted to make withdrawals based on what would have been the original beneficiary's life expectancy.

IRA beneficiaries who inherited under the old rules can switch to the new distribution rules, which might allow them to extend the life of their IRA accounts and save taxes.