For most people, the IRA is ideal for building up their retirement savings. This is because they do not have to worry about the taxes until much later. However, those people who are age 70 ½ and over are required to remove some of their funds through what is known as a mandatory distribution. This is when they must withdraw a certain amount out of their account under federal regulations every year. The problem is that there are number of different variables that could have an impact upon how much they are required accept as a distribution.
IRA 2011 Minimum Distributions
The biggest issue when taking any kind of distribution in your IRA is that: the amounts are subject to changes in regulations. This is because they are constantly shifting based on: political and economic factors. Currently, IRS guidelines require someone who is age 70 ½ and older to take the mandatory distribution by December 31st. The problem that most people will encounter is that there is a sliding scale used to determine the minimum amounts that they will have to take.
The way that these figures are calculated is: by taking the withdrawal factor (life expectancy) and dividing it into the account value. For example, let’s say that you are age 70 ½ and that you will be taking your first distribution on an IRA valued at $100,000. The way that this is calculated is by dividing the life expectancy into this amount (which would give you $3,649.64 or 3.79%) The below table is illustrating the current life expectancy rates that are used by the IRS.
IRA Life Expectancy for 2011
Other Factors that should be Considered
There are other factors that need to be considered when taking any kind of mandatory withdrawals to include: the timing, possible under distributions and the death of the owner of the IRA. The timing of the IRA withdrawal can occur: in one lump sum or it can be broken up into a series of different distributions. The only stipulation is that the total amount should be completely withdrawn by the end of the year. Otherwise, you could be subject to a 50% excise tax for the distributions during that calendar year. If the owner of the IRA dies during the year there two ways that this will be determined to include: if they are taking withdrawals and those that are made after the death of individual. In cases when they are taking withdrawals, the distribution will continue as if the owner had lived for the entire year. While those situations involving distributions after their death, will require the minimum amount going to the beneficiary.
IRA Maximum Distribution
There is no maximum distribution that must be taken. However, it is important to remember that anything over the minimum amount cannot be carried forward and applied to other years. Clearly, taking the minimum IRA distribution can be confusing for many people. This is because these regulations are constantly changing. The best way to keep up on the current laws is to visit the IRS’ web site and look for the Uniform Lifetime Table. This will tell you the most recent life expectancy rate (based on your age). You can then divide this number into the value of your IRA to determine the minimum withdrawal that you will need to make. This will help you to always stay on top of these figures regardless of changes that are occurring in these regulations.