Feb

20

IRA Minimum Withdrawals

Posted by cameron

February 20, 2007 |

A 70-year-old friend recently said, “I just received notification that I must start withdrawing from my IRA. What does that mean?” I knew there was a formula so I looked it up.

IRS Rule: “If you are the owner of a traditional IRA, you must start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date.”

Minimum withdrawal amounts must be taken after 701/2 years of age.

IRS Example: “You reach age 70½ on August 20, 2005. For 2005, you must receive the required minimum distribution from your IRA by April 1, 2006. You must receive the required minimum distribution for 2006 by December 31, 2006”

So be careful at the startup point because you can end up with two distributions in a single tax year. There are three tables, which depend on whether your spouse is alive and whether your spouse is close in age to you. Yep, everything is complicated with the government. Below is the table for a married couple where age difference is less than 10 years. If you need one of the other tables then go here. The table below shows the distribution period for each age from 70 to 115. The way you use this is to look at the table each year and use the distribution years for your current age and divide that into the year-end value of the IRA. That will determine the minimum amount you must withdraw for the following year. As you age, the distribution period gets shorter and your minimum withdrawal amount increases. For example, if you are fortunate enough to live until you are 115, you will have to withdraw almost half of what you have left.

Example: Say I have $50K in an IRA at the end of this year and I am 75 years old, then the minimum withdrawal amount will be $50K divided by 22.9, which is $2.18K for the year, or $182 per month.

withdrawal-table.JPG


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1 Comment so far

  1. IRS Retirement Forms and Worksheets :: Empty Nest on August 25, 2007 9:43 am

    […] see previous posts on these topics go here, here and here. (This is worthwhile […]

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