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Understanding IRA Distribution RulesIRA Distribution Rules - Annuity Rates, Annuities, Annuity Quotes and Fixed Annuities

According to a recent study, 83 percent of people started working with a financial professional to build a retirement fund. Given the complexity of the rules surrounding IRAs and employer-sponsored retirement plans, it's easy to understand why.

Consider the distribution rules. After age 59, you can begin withdrawing funds from tax-deferred retirement plans and avoid the 10 percent early-withdrawal penalty. If you decide to wait, you generally must begin taking required minimum distributions (RMDs) from these plans once you reach age 70 (Roth IRAs and annuities are exceptions). In succeeding years, minimum annual distributions must be taken no later than December 31. Failure to take the required annual distribution could result in a 50 percent income tax penalty on the amount that should have been withdrawn.

Required minimum distributions are mandatory to help ensure that you pay taxes on funds you have accumulated in tax-deferred retirement accounts, which were designed to provide retirement income.

Key Rules to Follow
The latest date you can start taking RMDs is April 1 of the year following the year in which you turn 70.4 Although some people wait until the last possible deadline to start, this could be a mistake because they would have to take two distributions in the same tax year, which might move them into a higher tax bracket. It may be better to separate this distribution into different tax years.

The annual RMD will depend on your age, the value of your account(s), and your life expectancy. The calculation is fairly straightforward. Depending on your situation, use the appropriate IRS table, which shows different ages and distribution years. Simply divide the value of your retirement account balance at the end of the previous year by your life expectancy factor, based on the numbers in the table.

If you have several IRAs, calculate the RMD for each account to arrive at the total. If you wish, you can take the total amount from one account to meet your RMD. However, if you also have money in an employer-sponsored retirement plan, you need to take money from each type of plan. And if you have more than one employer plan, you must take separate withdrawals from each.

Most people understand the importance of putting money into their retirement plans, but many are not aware of the rules for taking their money out. Please call to review your options before you make any decisions you might regret later.

1) Investor's Business Daily, April 29, 2004
2) Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to age 59, may be subject to an additional 10 percent federal income tax penalty.
3, 4) If still employed, you may be able to delay minimum distributions from your current employer's plan until after you retire.

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