John M. Hoffman & Associates CPAs
Frequently Asked Tax Questions
Individual Retirement Accounts – IRAs
What about minimum distributions when I reach age 70 ˝.
IRAs (excluding ROTH IRAs) as well as other qualified retirement accounts are subject to minimum distribution rules. Essentially the government has given you tax advantages to save for retirement and at age 70 and ˝ your part of the bargain is to commence using this money and not allowing the tax deferral to go forever.
Penalties for not complying with the minimum distribution rules are VERY SEVERE – 50% of the amount that you should have withdrawn.
Distributions must commence either in the year that you attain age 70 and ˝ or by the following April 1. If you wait until the subsequent April 1, you will need to make two distributions in that “delayed” first year. For that reason we suggest that you commence your distributions in the year that you reach age 70 and ˝.
The minimum distribution (and we remind you this is the minimum – you can always take more) is calculated by taking the beginning of the year balance (that is the same as the end of last year’s balance) and dividing by your life expectancy. The life expectancy, found in the IRS table is based on a joint and survivor life expectancy table with a spouse ten years younger than you. Even if you are single or widowed, you get to use this table. If your spouse is more than ten years younger (known as a trophy spouse), there are other tables available.
Don’t forget, use your account balance at the beginning of the year and your age at the end of the year
Example of how to compute the minimum required distribution:
