IRA Withdrawal Rules

If you are an Individual Retirement Account owner/contributor and you’ll soon be 70.5 years of age, the Internal Revenue Service obligates you to start accomplishing minimum distributions from your retirement plan. Here are some of the important IRA withdrawal rules you need to remember to do it proficiently.

Minimum Withdrawal Rules

If you are approaching the age of 70.5, then you are most likely aware of the IRA rules and tax law that necessitates you to get mandatory payouts every year. If by this year (2010) you turn 70.5 years old, you must make your first minimum distribution no later than the 1st of April, 2011.

Getting money from your IRA, definitely, means your account will have to deal with the resulting income-tax bills. In reality, the chief reason why the Congress established the minimum withdrawal policies was to protect the government by letting you hand over the government’s share of your Individual Retirement Account sooner. If you defaulted or failed to carry out the required withdrawal of a specific amount every year, you’ll incur a 50% penalty due to the shortfall. Obviously, you can take more money than the minimum amount and disburse the extra income taxes.

Remember that the IRA minimum distribution policies also apply to SIMPLE or SEP IRA, because they are both categorized as retirement plans for this purpose. However, Roth IRA contributors are exempted from this provided that the original account owner is still alive.

Minimum Withdrawal Dates

You must be aware that the IRA withdrawal rules can be confusing. As you are nearing your 70.5th years, you will have to make important investment decisions. You may accomplish your first minimum distribution during the year you become 70.5 years of age, or you can get it on the 1st of April of the year after you become 70.5 years old. Then for each successive year, you must take the mandatory withdrawal amount by 31st of December.

You should note that taking the minimum required distribution money can have profound implications to your account. After all, if you don’t complete your initial minimum distribution by the time you turn 70.5 years old, you will end up paying double dip taxes in the subsequent year. Learn more regarding Roth IRA rules so you will not have to pay extra penalties on IRA withdrawals.

Minimum Withdrawal Amount

The amount of every minimum distribution is dependent on your IRA balance at the end of the preceding year divided by the life-expectancy figure of both the account owner and the beneficiary, as seen in tables outlined and published by the IRS. Thus, the younger you are at the time of opening the account, the longer your life-expectancy figure will be. The longer your life-expectancy figure is, the bigger the divisor will be. The good news is that the bigger the divisor, the lower your minimum distribution amount will be, which delineates lower taxes.

The IRA withdrawal rules automatically presume that you have appointed a beneficiary who is ten years younger than you are. But don’t’ worry, the IRS doesn’t mind if your actual beneficiary is older than the presumed age. In general, it doesn’t matter much if you’ve really elected a beneficiary or not.

  • arnold berger

    Does the required minimum withdrawal also cover 401(k), 403(b) and IRAs into which deposits are currently being made.

  • Allan S. Otis

    How much do I have to withdraw ? I turn 70.5 on i/i/12 and am married.

  • Walter

    Hope that you can answer my question and hope that this is the page for such.

    My bank has notified me that I have a small IRA coming due in October. I took it out as a tax-savings measure. It has accumulated to $2,600. It is not really a part of my retirement, just an ill-conceived investment by a CPA. I have had it for 7 years. I am 81 years old. I plan on cashing it in. What sort of penalty will there be?
    Walter

  • Ben

    Hi Walter! Are you sure that it’s an IRA that you have? Contributions are only supposed to be made to your traditional IRA for each year that you receive compensation and have NOT reached age 70.5. If you opened it when you were 74, i’m not sure how you would make qualified contributions.

    Generally, you must start receiving distributions from your IRA when you reach the age of 70.5. These are referred to as ‘Required Minimum Distributions’. If there are no distributions, or if the distributions are not large enough, you could have to pay a 50% excise tax on the amount that has NOT been distributed as required.

    To figure your required minimum distribution for each year bydividing the IRA account balance by the applicable distribution period or life expectancy.

    You can learn more from IRS 590 and it’s advised to contact your IRA custodian to discuss your specific details.

    I would also contact your CPA to confirm whether it’s an IRA or not. My guess is that it could be a CD instead of an IRA.

    Hope that helps!

  • Anonymous

    Hi Walter! Are you sure that it’s an IRA that you have? Contributions are only supposed to be made to your traditional IRA for each year that you receive compensation and have NOT reached age 70.5. If you opened it when you were 74, i’m not sure how you would make qualified contributions.

    Generally, you must start receiving distributions from your IRA when you reach the age of 70.5. These are referred to as ‘Required Minimum Distributions’. If there are no distributions, or if the distributions are not large enough, you could have to pay a 50% excise tax on the amount that has NOT been distributed as required.

    To figure your required minimum distribution for each year bydividing the IRA account balance by the applicable distribution period or life expectancy.

    You can learn more from IRS 590 and it’s advised to contact your IRA custodian to discuss your specific details.

    I would also contact your CPA to confirm whether it’s an IRA or not. My guess is that it could be a CD instead of an IRA.

    Hope that helps!

  • Betty Richey

    When I make my withdrawal from my IRA can I open a Roth IRA to put it in? I am 70.

  • Hi Betty!

    Contributions can be made to your Roth IRA regardless of your age.

  • Use this worksheet to figure this year’s RMD for your traditional IRA.

  • Charliewhaley

    i want to withdraw from my IRA to buy a house. How much can I withdraw without paying taxes of pentilies

  • Hi Charlie,

    If you’re a first time home buyer, you can withdrawal up to $10,000 without any penalties.

  • Yeah because nothing is more fair than telling forgetful, frequently disabled and recovering, mending and rehabing from ongoing health issues, mostly non-technical 75 year old grandmas they need to go online and refer to “tables outlined and published by the IRS” to figure out and remember to withdraw the proper amount of money every year or get jammed up with penalties. NICE!

  • John

    If I withdraw funds from my IRA after retirement will it affect my tax bracket. I know I will have to pay income tax. The tax percentage is what I am concerned with.

  • 4theluvofdogs

    In the process of refi my home, the mortgage broker advised me to take an IRA distribution with the instruction to distribute monthly until the plan is depleted completely, then when the loan is funded, revoke my distribution request. The IRA manager said this would constitute fraud. Is he correct? Is this loan broker misleading me? She claims many of her refi clients and new home buyers are taking this IRA distribution then revoking the request.

  • Elaine Roberts

    If I want to draw out a larger amt, more than required, after I turn 70.5 yrs. will I be penalized or have to pay a higher tax?

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