Once you reach the age of 70½ years, you are probably already aware that it is necessary for you to initiate your minimum IRA distribution, as you are a participant of the conventional IRA account that comes along with a lot of tax benefits. The exact amount of your IRA minimum distribution will be calculated according to an IRS formula that divides your total IRA account balances by your estimated life expectancy.
Normally, the documentation and the important calculations that are required for you to start receiving your IRA distribution withdrawals are provided by your IRA trustee or your IRA custodian; but as the ultimate responsibility to make sure that the payments for these IRA minimum distributions are done correctly is your own. Consequently, it is necessary to figure out how these mandatory distributions work. Moreover, if you possess more than one IRA account and you wish to compute the minimum IRA withdrawals that are required, you must be able to do all the required calculations yourself.
The most frequently asked questions that are related to minimum IRA distribution withdrawals and their answers are given below:
Q: What is the due date for my minimum IRA distribution
A: You must take the first minimum IRA distribution for the year in which you turn age 70 ½. However, the first payment can be delayed until April 1st of the year following the year in which you turn 70 ½. Thereafter, including the year in which the first minimum IRA distribution was paid by April 1st,you must take the RMD by December 31st of the year. Therefore, it is recommended that you take your first distribution in the year you turn 70 1/2 rather than waiting till the following April 1. If you wait till the following April 1, you will need to take your subsequent years distribution by December 31 of that same year thereby doubling-up and potentially forcing yourself into a higher tax bracket.
Q: Will I be required to pay a penalty if I withdraw less than my required minimum IRA distribution amount?
A: Obviously. According to IRS tax code, you will be charged a 50% penalty on the funds that weren’t withdrawn. This is in addition to the state and/or federal income taxes that will be due on the amount of the IRA minimum distributions that you did make.
Q: Am I required to make a minimum IRA distribution from every IRA account?
A: If you have your retirement funds in additional IRA accounts, you will be accountable for calculating the minimum IRA distribution that is necessary for each account and making a withdrawal equal to that amount. You use the balances from December 31 of the prior year and divide by your life expectancy using the tables in back of IRS publication 590. However, you can take the distribution from any IRA you desire.
Q: Am I allowed to rollover my minimum IRA distribution to some other retirement account that gives continuing tax advantage?
A: No, you are not eligible to rollover your IRA minimum distribution to another IRA or tax sheltered retirement plan, as this would defeat the major purpose of the requirement in the first place. The government has established the minimum IRA distribution so as to collect taxes that you have never paid.
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