IRA Distribution Rules

ira distribution rules


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This site on Ira dis­tri­b­u­tion rules is a a lit­tle tech­ni­cal and was cre­ated as a resource for finan­cial advi­sors and finan­cial plan­ners. Con­sumers may want to visit our con­sumer site on IRA dis­tri­b­u­tions.

Finan­cial advi­sors will find some of the more tech­ni­cal issues here such as exactly how sec­tion 72t is imple­mented, how to take dis­tri­b­u­tions from just one IRA account if the client has sev­eral and what hap­pens if your client misses a dis­tri­b­u­tion. Finan­cial advi­sors and finan­cial plan­ners may also want to send their clients and prospects a newslet­ter that can be focused on IRA dis­tri­b­u­tion and man­age­ment issues.

RMD Tables Needed to Comply with IRA Distribution Rules

There are three sets of tables for tak­ing required dis­tri­b­u­tions.

  • RMD Table used by the IRA owner who is sin­gle or mar­ried
  • RMD Tables used by the IRA own­ers who is mar­ried, has named
    his spouse as ben­e­fi­ciary and that spouse is more than 10
    years younger
  • RMD Tables used by IRA Ben­e­fi­cia­ries

IRA distribution rules for IRA or qualified plan account owners

The fol­low­ing RMD table, to be used by the IRA owner is employed as fol­lows.

Fig­ure your required min­i­mum dis­tri­b­u­tion for each year by divid­ing the IRA account bal­ance (defined next) as of the close of busi­ness on Decem­ber 31 of the pre­ced­ing year by the applic­a­ble dis­tri­b­u­tion period or life expectancy (a num­ber you get the from IRS tables below). The IRA account bal­ance is the amount in the IRA at the end of the year pre­ced­ing the year for which the required min­i­mum dis­tri­b­u­tion is being fig­ured.

Let’s take an exam­ple:

Laura was born on Octo­ber 1, 1934. She is an unmar­ried par­tic­i­pant in a qual­i­fied defined con­tri­bu­tion plan. She reaches age 70 12 in 2005. Her required begin­ning date is April 1, 2006. As of Decem­ber 31, 2004, her account bal­ance was $26,500. The amount is dis­trib­uted to her on April 1, 2006 is $1000 ($26,500 / 26.5).

Note, that the account bal­ance of the IRA as of 12÷31÷04 would have been adjusted upward for any amounts rolled over to a Roth that were later re-characterized (put back in the IRA) or out­stand­ing amounts rolled over (i.e. amounts in tran­sit not in any account as of 12÷31÷04). In other words, IRS closes the pos­si­bil­ity of manip­u­lat­ing the IRA bal­ance as of 12÷31÷04). Each year this process is repeated with the prior year’s year end IRA bal­ance being divided by the fac­tor on the table below related to the IRA owner’s age.

 

RMD Table III
(Uni­form Life­time)
(For Use by:
  • Unmar­ried Own­ers,
  • Mar­ried Own­ers Whose Spouses
    Are Not More Than 10 Years Younger, and
  • Mar­ried Own­ers Whose Spouses
    Are Not the Sole Ben­e­fi­cia­ries of their IRAs)

 

 

Age Dis­tri­b­u­tion Period Age Dis­tri­b­u­tion Period
70 27.4 93 9.6
71 26.5 94 9.1
72 25.6 95 8.6
73 24.7 96 8.1
74 23.8 97 7.6
75 22.9 98 7.1
76 22.0 99 6.7
77 21.2 100 6.3
78 20.3 101 5.9
79 19.5 102 5.5
80 18.7 103 5.2
81 17.9 104 4.9
82 17.1 105 4.5
83 16.3 106 4.2
84 15.5 107 3.9
85 14.8 108 3.7
86 14.1 109 3.4
87 13.4 110 3.1
88 12.7 111 2.9
89 12.0 112 2.6
90 11.4 113 2.4
91 10.8 114 2.1
92 10.2 115 and
over
1.9

 

IRA distribution rules — spouse more than 10 years younger

If the plan owner names a spouse as sole ben­e­fi­ciary who is more than 10 years his junior, then other tables are used based on joint life expectancy. This can be found at the back of IRS Pub­li­ca­tion 590-B. Note: Your mar­i­tal sta­tus is deter­mined as of Jan­u­ary 1 of each year. If you are mar­ried on Jan­u­ary 1 but get divorced or your spouse dies dur­ing the year, your spouse as of Jan­u­ary 1 remains your sole ben­e­fi­ciary for that year. For pur­poses of deter­min­ing your dis­tri­b­u­tion period, a change in ben­e­fi­ciary is effec­tive in the year fol­low­ing the year of death or divorce.

If your spouse is the sole ben­e­fi­ciary of your IRA, and he or she dies before you, your spouse will not fail to be your sole ben­e­fi­ciary for the year that he or she died solely because some­one other than your spouse is named a ben­e­fi­ciary for the rest of that year.

How­ever, if you get divorced dur­ing the year and change the ben­e­fi­ciary des­ig­na­tion on the IRA dur­ing that same year, your for­mer spouse will not be treated as the sole ben­e­fi­ciary for that year.

IRA distribution rules — for IRA beneficiaries

If you inherit an IRA, the the IRA dis­tri­b­u­tion rules are the sim­i­lar to the owner. Except you use a spe­cial table for ben­e­fi­cia­ries and rather than ever look­ing at the table again after your first dis­tri­b­u­tion, you sim­ply sub­tract 1 from the divi­sor.

Exam­ple:

Your father died in 2004. You are the des­ig­nated ben­e­fi­ciary of your father’s tra­di­tional IRA. You are 53 years old in 2005. You use the Table for ben­e­fi­cia­ries below and see that your life expectancy in 2005 is 31.4. If the IRA was worth $100,000 at the end of 2004, your required min­i­mum dis­tri­b­u­tion for
2005 is $3,185 ($100,000 ÷ 31.4). Let’s say at the end of 2005, the IRA is again worth $100,000, you dis­trib­ute $3289 ($100,000/30.4) because each year you sub­tract 1 from your orig­i­nal divi­sor.

Note that this process of the ben­e­fi­ciary slowly emp­ty­ing the IRA over their life­time is called the stretch IRA. Many par­ents may want their chil­dren to have this advan­tage. There’s only one prob­lem.

The ben­e­fi­cia­ries can empty the IRA as fast as they desire, can take the hole account, pay the tax and blow it in a week­end in Vegas (or sim­ply sit at home and put it up their nose). This can be con­trolled when you name a trust as IRA ben­e­fi­ciary.

Single Life Expectancy
RMD Table (for Inherited IRAs)

(For cal­cu­lat­ing post-death required dis­tri­b­u­tions
to ben­e­fi­cia­ries)

(From IRS Pub­li­ca­tion 590) 

Age of

IRA or Plan Ben­e­fi­ciary

Life Expectancy

(in years)

Age of

IRA or Plan Ben­e­fi­ciary

Life Expectancy

(in years)

Age of

IRA or Plan Ben­e­fi­ciary

Life Expectancy

(in years)

0

1

2

3

4

5

6

7

8

9

10

82.4

81.6

80.6

79.7

78.7

77.7

76.7

75.8

74.8

73.8

72.8

41

42

43

44

45

46

47

48

49

50

42.7

41.7

40.7

39.8

38.8

37.9

37.0

36.0

35.1

34.2

81

82

83

84

85

86

87

88

89

90

9.7

9.1

8.6

8.1

7.6

7.1

6.7

6.3

5.9

5.5

11

12

13

14

15

71.8

70.8

69.9

68.9

67.9

51

52

53

54

55

33.3

32.3

31.4

30.5

29.6

91

92

93

94

95

5.2

4.9

4.6

4.3

4.1

16

17

18

19

20

66.9

66.0

65.0

64.0

63.0

56

57

58

59

60

28.7

27.9

27.0

26.1

25.2

96

97

98

99

100

3.8

3.6

3.4

3.1

2.9

21

22

23

24

25

62.1

61.1

60.1

59.1

58.2

61

62

63

64

65

24.4

23.5

22.7

21.8

21.0

101

102

103

104

105

 

2.7

2.5

2.3

2.1

1.9