Withdrawl from IRAs

Withdrawals from IRAs: When owner is between 59 ½& 70 ½; & When owner turns 70 ½MontGuide200309Marsha A. Goetting, MSUKristen G. Juras, School of Law, University of MontanaRevised 2003Marsha A. GoettingMSU Extension Family Economics SpecialistP. O. Box 172800Montana State UniversityBozeman, MT 59717406-994-56956 MontGuides1.Individual Retirement Accounts2.Shopping for an IRA3.Withdrawals from IRAsWhen owner is under 59 ½When owner is between 59 ½ & 70 ½; turns 70 ½4.Inheriting an IRA: Planning techniquesPrimary beneficiariesSuccessor beneficiariesIndividual Retirement Accounts•www.montana.edu•Search:•Individual Retirement AccountsIRA Tax Law Changes•Economic Growth & Tax Relief Reconciliation Act of 2001Withdrawals•Between age 59 ½& 70 ½No penaltySubject to state & federal income taxIRA Withdrawal•Bruce’s income $29,000•Withdraws +$15,000•Taxable income = $44,000•Withdrawal “Lost”to taxes = $3,450Withdrawals•Age 70 ½ Required Minimum Distributions (RMD)70 ½Required Beginning Date•April 1Following year in which IRA owner reaches 70 ½Born June 30, 1933•Reaches 70 ½ December 30, 2003•RMD for 2003 By April 1, 2004•RMD for 2004By December 31, 2004RMD Based upon•Owner’s age•Beneficiary designation•Account balanceUniform Life Table•Used to compute IRA owner’s RMD yearly Page 3Table 1Uniform Life Table•Based on:Joint life expectancyRecalculated each yearHypothetical beneficiary 10 years youngerUniform Life Table•Page 3, Table 1•Age Distribution Period•7027.4•7522.9•8018.7•8514.8Bob, age 70•IRA balance $176,000•Distribution period 27.4 (Table 1, page 3)•RMD$176,000 27.4 = $6,423Recalculated each yr•Age Balance Factor•71 IRA $$$ ÷26.5•72 IRA $$$ ÷25.6•73 IRA $$$ ÷24.7•74 IRA $$$ ÷23.8•75 IRA $$$ ÷22.9What if beneficiary is more than 10 years younger thanIRA owner?•Doesn’t matter!!!!!Uniform Lifetime Table for withdrawal calculations must be usedWhat if spousal beneficiary is more than 10 years younger?•Different TableJoint Life & Last Survivor Table•Based onOwner’s AgeBeneficiary’s Age•Page 4, Table 2Hersh (78) & Mary (67)•IRA balance $40,000•Distribution period 21.0 (Table 2, page 4)•RMD•$40,000 21.0 = $1,905Recalculated each yr•Hersh & Mary•Ages Balance Factor•79 & 68 IRA $$$ 20.1•80 & 69 IRA $$$ 19.3Why important to correctly calculate RMD? •50% penaltyQuestion #9•What was the median $$$$ withdrawal from Traditional IRAs in tax year 2002?Answer: #9•Median Traditional IRA withdrawal in 2002$7,800Withdrawals from IRAs: When owner is between 59 ½& 70 ½; & When owner turns 70 ½MontGuide200309Marsha A. Goetting, MSUKristen G. Juras, School of Law, University of MontanaRevised 2003