Withdrawals from IRAs: When owner is between 59 ½ & 70 ½; & When owner turns 70 ½

MontGuide 200309 Marsha A. Goetting, MSUKristen G. Juras, School of Law, University of Montana

Revised 2003

Marsha A. Goetting MSU Extension Family

Economics Specialist

P. O. Box 172800P. O. Box 172800Montana State UniversityMontana State University

Bozeman, MT 59717Bozeman, MT 59717406-994-5695406-994-5695

6 MontGuides1.1. Individual Retirement AccountsIndividual Retirement Accounts

2.2. Shopping for an IRAShopping for an IRA

3.3. Withdrawals from IRAsWithdrawals from IRAs When owner is under 59 ½When owner is under 59 ½ When owner is between 59 ½ & 70 ½; turns 70 ½When owner is between 59 ½ & 70 ½; turns 70 ½

4.4. Inheriting an IRA: Planning techniquesInheriting an IRA: Planning techniques Primary beneficiariesPrimary beneficiaries Successor beneficiariesSuccessor beneficiaries

Individual Retirement Accounts

• www.montana.eduwww.montana.edu• Search:Search:• Individual Retirement AccountsIndividual Retirement Accounts

IRA Tax Law Changes•Economic Growth Economic Growth

& Tax Relief & Tax Relief Reconciliation Act Reconciliation Act of 2001of 2001

Withdrawals•Between aBetween age ge

59 59 ½½ & 70 & 70 ½½ No penaltyNo penalty Subject to state & Subject to state &

federal income taxfederal income tax

IRA Withdrawal• Bruce’s income Bruce’s income $29,000$29,000

• Withdraws +$15,000Withdraws +$15,000• Taxable income = $44,000Taxable income = $44,000• Withdrawal “Lost”Withdrawal “Lost”

to taxes = $3,450to taxes = $3,450

Withdrawals• Age 70 ½ Age 70 ½

Required Minimum Required Minimum Distributions Distributions (RMD)(RMD)

70 ½

Required Beginning Date• April 1April 1 Following year in which IRA owner Following year in which IRA owner reaches reaches 70 ½70 ½

Born June 30, 1933• Reaches 70 ½ Reaches 70 ½

December 30, 2003December 30, 2003

• RMD for 2003 RMD for 2003 By April 1, 2004By April 1, 2004

• RMD for 2004RMD for 2004 By December 31, 2004By December 31, 2004

RMD Based upon•Owner’s ageOwner’s age

•Beneficiary Beneficiary designationdesignation

•Account balanceAccount balance

Uniform Life Table•Used to compute Used to compute

IRA owner’s RMD IRA owner’s RMD yearly yearly Page 3Page 3

Table 1 Table 1

Uniform Life Table• Based on:Based on:

Joint life expectancyJoint life expectancy Recalculated each yearRecalculated each year

Hypothetical beneficiary Hypothetical beneficiary 10 years younger10 years younger

Uniform Life Table• Page 3, Table 1Page 3, Table 1

• Age Distribution PeriodAge Distribution Period

• 7070 27.427.4

• 7575 22.922.9

• 8080 18.718.7

• 8585 14.814.8

Bob, age 70• IRA balance IRA balance

$176,000$176,000

• Distribution period Distribution period 27.4 (Table 1, page 3)27.4 (Table 1, page 3)

• RMDRMD$176,000 $176,000 27.4 = $6,423 27.4 = $6,423

Recalculated each yr• Age Balance Age Balance FactorFactor• 71 71 IRA $$$ IRA $$$ ÷÷ 26.526.5• 72 72 IRA $$$ IRA $$$ ÷÷ 25.625.6• 73 73 IRA $$$ IRA $$$ ÷÷ 24.724.7• 74 74 IRA $$$ IRA $$$ ÷÷ 23.823.8• 75 75 IRA $$$ IRA $$$ ÷÷ 22.922.9

What if beneficiary is more than 10 years younger than IRA owner?• Doesn’t matter!!!!!Doesn’t matter!!!!!

Uniform Lifetime Table for withdrawal calculations must be usedUniform Lifetime Table for withdrawal calculations must be used

What if spousal beneficiary is more than 10 years younger?•Different Different TableTable

Joint Life & Last Survivor Table

• Based onBased on Owner’s AgeOwner’s Age Beneficiary’s AgeBeneficiary’s Age

• Page 4, Table 2Page 4, Table 2

Hersh (78) & Mary (67)• IRA balance IRA balance

$40,000$40,000

• Distribution period Distribution period 21.0 (Table 2, page 4)21.0 (Table 2, page 4)

• RMDRMD• $40,000 $40,000 21.0 = $1,905 21.0 = $1,905

Recalculated each yr• Hersh & MaryHersh & Mary

• Ages Balance FactorAges Balance Factor• 79 & 68 IRA $$$ 79 & 68 IRA $$$ 20.120.1

• 80 & 69 IRA $$$ 80 & 69 IRA $$$ 19.319.3

Why important to correctly calculate RMD?

• 50% 50% penaltypenalty

Question #9• What was the What was the

median $$$$ withdrawal median $$$$ withdrawal from Traditional IRAs from Traditional IRAs in tax year 2002?in tax year 2002?

Answer: #9• Median Traditional Median Traditional

IRA withdrawal in IRA withdrawal in 20022002

$7,800$7,800

Withdrawals from IRAs: When owner is between 59 ½ & 70 ½; & When owner turns 70 ½

MontGuide 200309 Marsha A. Goetting, MSUKristen G. Juras, School of Law, University of Montana

Revised 2003