If you are approaching retirement age, you should begin to consider when to take distributions from your qualified plans and IRAs. Waiting as long as possible is important in order to maximize the benefits of tax deferral in these retirement accounts. However, at some point in time, requirement minimum distributions (RMDs) must start to come out.
Calculating Required Minimum Distributions RMDs from IRA
This is big tax and retirement planning implications and must be taken seriously. If you have enough other assets for your support, you probably want to minimize distributions from your retirement plans so that your plan assets can continue to accumulate tax-deferred as long as possible. Other planning considerations can also affect when to begin taking distributions from IRA retirement accounts
Who must take Required Minimum Distributions from an IRA?
The distribution requirements were established to prevent you from accumulating funds tax free indefinitely. In the case of a qualified plan in which you participate, you are required to begin taking at least minimum distributions starting April 1 of the year following the year in which you reach age 70 1/2 or retire, whichever is later. In the case of your IRAs, you must begin distributions starting April 1 of the year following the year in which you turn 70 1/2, regardless of whether you have retired. If you have a Roth IRA, the news is even better. Since contributions to a Roth IRA are the result of after-tax dollars, no tax is generally due on distribution after retirement age, and there is no requirement that you distribute your account balance according to any particular schedule.)
Calculating Required Minimum Distributions (RMDs) from IRA
The minimum amount that must be distributed from your retirement accounts depends on your life expectancy, or the joint life expectancy of you and your spouse if your spouse is more than 10 years your junior. If the required amounts aren’t distributed, a 50-percent excise tax is imposed on the amount that should have been distributed but wasn’t.
In order to determine the amount of the minimum distribution you must receive for a year, you must locate your current age on one uniform table each year to obtain the updated number of years over which your benefits are expected to be paid. That number will then be divided into your account balance as of the end of the previous year to give you the amount that must be distributed to you for the current year. The table you will use is the same table that will be used by all retirement plan participants to calculate their required distributions.
What happens to IRA after Death?
After your death, your remaining plan assets will be paid to your beneficiary over his or her lifetime (unless you or your plan provide for a shorter distribution period). If you die before naming a beneficiary, but after the date the IRS says you must begin distributions from your plan, your remaining plan assets will be paid out over a period equal to your life expectancy immediately before your death unless your plan calls for a shorter period. If you die before that date without having named a beneficiary, your plan assets must be paid out within five years of your death.