Understanding IRA Distribution Rules
According to a recent study, 83 percent of people started working with a financial professional to build a retirement fund.¹ 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 59½, you can begin withdrawing funds from tax-deferred retirement plans and avoid the 10 percent early-withdrawal penalty.² If you decide to wait, you generally must begin taking required minimum distributions (RMDs) from these plans once you reach age 70½ (Roth IRAs and annuities are exceptions).³ 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the required annual distribution could result in a 50 percent income tax penalty on the amount that should have been withdrawn.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.
Rules to Follow
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.
Business Daily, April 29, 2004
|¹ First year yield/rate reflects fixed rate
plus premium bonus or interest rate enhancement.|
Interest is based on current rates and subject to change without notice.
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