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Moreover, there comes a time when you have to start making withdrawals. Generally, you must begin receiving minimum distributions from a regular IRA by April 1 of the year after the year you turn age 70 1/2 . (Roth IRAs have no minimum distributionrequirements during the account owner's life.) Distributions and withdrawals are taxed as ordinary income and may be subject to a 10% income taxpenalty if made prior to age 59 1/2 .
For example, John turned age 70 in June of 2004. He had to receive his first distribution from his IRA by April 1, 2005, because he reached age 70 1/2 in 2004. John must take a second distribution from the IRA before the end of 2005. In future years, he has to take just one required distribution a year. His wife Betty is two months younger; she didn't celebrate her 70th birthday until August of 2004. Betty doesn't have to begin distributions from her IRA until April 1, 2006, because she didn't turn 70 1/2 until 2005.
How Much?
Minimum distributions are based upon a table of divisors set forth in the regulations. This table (see table below) represents the jointlife expectancy of you and an assumed beneficiary who is ten years younger than you. For example, at age 71 the divisor is 26.5. To calculate the minimum distribution, you must divide your IRA balance by 26.5. If your IRA balance were $100,000, you would have to withdraw $3,774 that year, and pay the appropriate tax on that amount.
The divisors shown in the table are used regardless of whether you have actually designated a beneficiary of your IRA, and regardless of the beneficiary's actual age, except in one situation. That is the situation where you have designated your spouse as beneficiary, and your spouse is more than ten years younger than you. In that case, you may calculate your minimum distribution based upon the actual joint life expectancy of you and your spouse, which will result in a smaller minimum distribution than if you used the divisor set forth in the table.
Age of Employee
Distribution Period
Age of Employee
Distribution Period
Age of Employee
Distribution Period
Age of Employee
Distribution Period
70
27.4
78
20.3
86
14.1
94
9.1
71
26.5
79
19.5
87
13.4
95
8.6
72
25.6
80
18.7
88
12.7
96
8.1
73
24.7
81
17.9
89
12.0
97
7.6
74
23.8
82
17.1
90
11.4
98
7.1
75
22.9
83
16.3
91
10.8
99
6.7
76
22.0
84
15.5
92
10.2
100
6.3
77
21.2
85
14.8
93
9.6
101
5.9
Minimum distributions are based upon the above table of divisors set forth in the Treasury Regulations, Section 1.401(a)(9)-9, Q&A - 2.
What if you don't withdraw the required amount? According to the IRS, you will have an "excess accumulation." The penalty for that is 50% of the amount not distributed as required. So, in this example, you'll pay the IRS half of $3,744 - $1,887. And the IRS will continue to take half of the amount you should have received for every year in which you don take the required minimum distribution.
Taking More
Of course, not everyone wants to keep IRA distributions as low as possible. During retirement, you are always free to withdraw more money from your IRA than the minimum required distribution. Simply direct your IRA trustee to pay you the higher amount. Your professionalfinancial advisor can help you determine both how much money you need to withdraw to meet your retirement income needs and the amount of your minimum required distribution. However, it is your responsibility to make sure the minimum amount is distributed to you.
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