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.