Below are some of the standard questions I’m asked about IRA distributions.
1. When must I begin taking distributions from my IRA? By April 1 of the year following the year in which you turn 70.5.
2. Should I wait until then, or should I take out money earlier? It depends upon your facts and circumstances. However, delaying until April 1 following the year in which you turn 70.5 results in having to take out 2 years of required minimum distributions in the year you turn 71.5.
3. What is the penalty if I don’t take out enough money? 50 percent of the shortage.
4. Is there a limit on how much I can take out of my IRA? No.
5. If I have more than one IRA, can I take all of my required distribution from one account? Yes.
6. How is my required minimum distribution calculated? Your 12/31 IRA(s) balance is multiplied by your life expectancy (and in some circumstances the joint life expectancy of you and your spouse if he/she is 10 years younger) as determined by IRS tables.
7. Who can I name as my beneficiary? Anyone you’d like, including a charity, a pet or even the IRS!
8. What is an inherited IRA? This is an IRA that is established by a beneficiary of your IRA.
9. What is an inherited IRA trust? This trust is designed to prevent beneficiaries from depleting IRA assets more quickly than you would like.
10. Must owners of an inherited IRA or the trustee of an inherited IRA trust take minimum required distributions from the IRA? Yes. The amount is based upon life-expectancy tables based upon the beneficiary’s age.
11. Why am I required to take money out of an IRA when I don’t need the money? The IRS wants to collect tax dollars on the funds you contributed on a tax-deductible basis as well as the earnings.
12. What if I made non-deductible contributions to my IRA? A portion of the distribution will be nontaxable if you filed IRS Form 8606 each year you made a nondeductible contribution.
13. Can I contribute to my IRA after I am 70.5? No. However, you can contribute to a Roth IRA if you have compensation and satisfy the eligibility requirements.