Is your 70th birthday getting close? You should be aware that you must begin taking minimum annual distributions from your traditional IRAs no later than April 1 following the year in which you reach age 70-1/2. The tax rules require minimum annual distributions to be made to help assure that IRAs are used primarily to provide for retirement, rather than as a family tax shelter.
Fortunately, IRS regulations favor the IRA owner who wants to make the smallest possible withdrawal each year. For example, applying the rules that are used by most IRA owners, if you reach age 70-1/2 during Year 1 and your 71st birthday falls within Year 1, then:
- your withdrawal for Year 1 must be at least 3.77% of your IRA balance at the end of the preceding year;
- your withdrawal for Year 2 must be at least 3.9% of your IRA balance at the end of Year 1; and
- your withdrawal for Year 3 must be at least 4.05% of your IRA balance at the end of Year 2.
Other factors may also come into play. Minimum annual distributions are smaller if your spouse is the sole designated beneficiary of your IRA, and he or she is more than ten years younger than you. Complications may arise if you have multiple IRAs. For example, the minimum distribution is calculated separately for each IRA, but the total minimum distribution for all of them may be paid out from one IRA or from a combination of IRAs. If you don't withdraw the required minimum amounts, you could be hit with a 50% penalty tax.
Please contact us if you’d like to review how the minimum distribution rules affect your retirement, estate, and financial plans.
Bottom line—we help yours grow!
