The Required Minimum IRA Distribution
- Your minimum withdrawals don't begin until you turn 70 1/2. You're free to make withdrawals earlier, starting at 59 1/2, and you're always free to withdraw more than the minimum. No matter how much you withdraw in any year, you have to make a minimum withdrawal the following year as long as there is money in the account. If you withdraw less than you're supposed to, the leftover money will be hit with a 50 percent penalty tax: If your withdrawal was $1,000 less than it should be, that would be a $500 punishment.
- Each year that there's money in the account, you must calculate your life expectancy based on Internal Revenue Service (IRS) tables. Use that to figure your minimum distribution. If you have $90,000 in the account, for instance, and the tables say you have 15 years to live, your minimum distribution is $6,000. Recalculating each year takes into consideration changes in the worth of the account over time as your investments grow or shrink.
- You don't have to take the withdrawal in one lump sum. You can withdraw money quarterly, monthly or on any other installment plan that suits you, as long as the total equals the minimum distribution for the year. If you have more than one IRA, you must calculate a minimum withdrawal for each account. You can take the minimum from each account or you can total them up and make one withdrawal from one account, if that better suits your investment strategy.
- You usually pay income tax on all the money you take out of a traditional IRA. If you donate part of your distribution to a charity, however, you don't have to count it as income on your tax return. The money you donate to charity can count toward your minimum distribution for the year or take up your entire minimum distribution. If you don't count the donated money as income, you can't claim it as an itemized tax deduction.
