IRA question?

Question

After your 70 1/2, when do you start taking your money out of your IRA? How does that work? Thanks.

Answer 1

The age 70 1/2 rule only applies to Traditional IRAs. When you become age 70 1/2, you must begin taking the minimum distribution requirement by April 1 of the following year. For example, lets say you become 70 1/2 years old in the year 2007, you just take the minimum amount by April 1, 2008.

To figure out this minimum amount, you need to go to the IRS website and download publication 590 and look at the appendix. Here is the formula to figure out the minimum distribution requirement: (Your account balance on Dec 31 of the previous year) DIVIDED BY (your life expectancy as stated in the appropriate Table, which is usually Table III).

Example: Lets say you become age 70 1/2 in 2006. Your ending account balance on Dec 31, 2005 was $86,000. The minimum distribution requirement is: ($86,000/27.4) = $3138.69. You may start making withdrawals when you become age 70 1/2. If you do not, you must take the minimum distribution by April 1, 2007. This date is called the "Required beginning date." Remember, this is only the mimimum. You can always take more out, but this will not affect the minimum requirement distribution.

Continuing with this example. In 2007, you are age 71. Your account balance on Dec 31, 2006 was: $83,000. The minimum distribution for 2007 is: ($83,000/26.5) = $3132.08. You must take this minimum amount by December 31, 2007 (not April 1, 2008). Failure to meet this minimum amount will result in a 50% tax on the amount you have not taken. Let's say in 2006 you only took $2000 from your Traditional IRA. Your minimum requirement is $3132.08. Since you did not meet the minimum requirement, the amount you will be taxed on is $1132.08 (3132.08 - 2000). You will owe: $566.04 in taxes. And that's as far as I will go with the Rule 70 1/2.

When you make withdrawals from your Traditional IRA, your withdrawals may be subjected to income tax. You will pay taxes on the gains, interests, dividends, and any part of your contributions you made tax-deductible. The only tax-free withdrawals you have is the contributions you didn't make tax-deductible.

Answer 2

First you only have to take distributions from a Traditional IRA. A Roth has no such requirement. As the previous answerer said there is a calculation to determine the minimum required distribution. (MRD). of a Traditional IRA. You can go to the IRS website or the trustee can calculate it for you. You should have heard from them prior to 70.5 years old. They will keep track of it too. Remember you must take the money whether you want to or not. The penalty for not taking the distribution is pretty nasty. I think it is 50% of the amount required.

Answer 3

The IRS has tables that determine your RMD (Required Minimun Distribution). The trustee of your IRA may also be able to help you calculate this.

After you determine the amount. Call the trustee and have them cut you a check. My dad does this every December.