For those of you who will be 70½ or older as of December 31st of this year and have Traditional IRAs, you have to take the annual required minimum distribution from your IRA account by December 31st. There is not a required minimum withdrawal from Roth IRA accounts.
By law, after you reach the age of 70½, you are required to withdraw a minimum amount from your Traditional IRA, annually. There are a number of factors that play a part in determining what your required withdrawal amount will be for any given year. The basic formula for calculating this figure is as follows: Take the value of your IRA as of December 31st of the previous year and divide that figure by an annuity factor.
The annuity factor you will use is based on your age as of December 31st of the current year. Most people will need to use the annuity factor found on the Uniform Lifetime table. An exception to this is if your spouse is the beneficiary and is at least 10 years younger. If this is the case, you will need to use the Joint Life and Last Survivor Expectancy table. If you are a beneficiary, you need to use the Single Life Expectancy table.
To help calculate your minimum distribution, you can go to www.irs.gov.
If you are turning 70½ this year, or will be 70½ by December 31st , you need to be aware of an important rule. During the year in which you turn 70½, you can actually defer your withdrawal until April 1st of the following year. This strategy, however, could have tax ramifications. If you defer your first withdrawal to the next year, you would be required to take two withdrawals: one for the previous year that was deferred, and the one for the current year. Depending on the amount of the withdrawals, you possibly could be bumped into another tax bracket because distributions from IRAs are taxed as ordinary income.
Given the intricacies of calculating and formulating a strategy for mandatory Traditional IRA withdrawals, it is always better to verify with your C.P.A. and financial adviser before you make any withdrawals from an IRA. For more information regarding this topic, please contact Henssler Financial at 770-429-9166 or [email protected].