Ooh That Hurts

January 11, 2022

“Why is this person calling my dad William?” was the question my daughter was asking. We were at the
Sheraton on Kauai for scuba lessons. The plan was for my daughter, her two older children, and myself
to finish a two-day in-water certification program while her husband watched the younger girls.
Unfortunately, I was scrubbed at the last minute because of a surgery 6 months earlier. So, my son-inlaw took my place diving and I was left babysitting the 8- and 10-year-old girls.


After a few hours hanging around the pool, I got bored. Going through the list of activities at the
resort, the only things currently available were ukulele and hula lessons. Having nothing better to
do, I signed us up for both and headed over to the recreation area. The same Hawaiian women
taught both classes. I told her that her name sounded like “Ooh Eeh Ooh Ah Aah Ting Tang Walla
Walla Bing Bang” to me. She said the first syllable was similar, so I opted to call her “Ooh.” She was
struggling with my name as well and decided it would be easier if she just called me “William.” And
that is why when she saw me hangingout at the pool with my daughter she yelled, “William!” and I
waved and yelled back “Ooh!”


I found out 20 years ago that the IRS will occasionally do something similar to what Ooh and I did
when writing regulations to interpret complex laws enacted by Congress. One such example is Section
401(a)(9)(B)(i)(II) of the tax codes which says if an IRA owner “…dies before his entire interest has
been distributed to him, the remaining portion of such interest will be distributed at least as rapidly
as under the method of distributions being used…” In their first attempt to interpret the “at least as
rapidly” clause, the IRS in the 1987 proposed regulations required the IRA owner to make an
irrevocable election on their required beginning date regarding the choice of beneficiary and the
calculation method to be used when distributing their IRA over their lifetime and after their death.
The rules, while a faithful interpretation of the law, were extremely difficult to understand and the
outcomes could be dramatically different, depending on luck and the choices made. IRA owners were
confused about their choices and IRA custodians were confused about the required payments.


Into this mess, I stepped with software that helped IRA owners make decisions based on the best
odds and allowed custodians to easily calculate the amount of the required minimum distributions
(RMD), even in the most convoluted cases. A good example of how simple it was to use occurred in
1999 when I was in Portland consulting with an attorney. I told her that the information in the RMD
report her firm had paid a few thousand dollars for was wrong. And I bet her that a local friend’s 11-
year-old daughter could get the right answers, with no help, in less than 10 minutes, which she did.
The accuracy and ease of use of my software caught the attention of some of the country’s top estate
attorneys, a number of the largest financial publications, the biggest IRA custodians, and even the IRS.
I was counting the millions I was going to earn when the IRS decided to change their interpretation of
the “at least as rapidly” rule to one that significantly deviated from the wording of the law but was
easier to understand and apply. It was also much friendlier to IRA owners and especially to their
beneficiaries, who were almost guaranteed the ability to stretch inherited IRA payments over their life
expectancy.


In the new proposed regulations in 2000 and the subsequent final regulations, the IRS did what Ooh
and I did: arbitrarily substituted ease for accuracy. Instead of faithfully interpreting the law, they
basically said 'the law is whatever we say it is.' In 2020, Congress, in the Secure Act, trumped the IRS
and legally changed the meaning of the “at least as rapidly” rule and this time made it very clear that
in the majority of cases it means 10 years. For those beneficiaries of inherited IRAs who will no
longer have the opportunity to stretch payments over their lifetime, “Ooh! That hurts.”

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