What Is the Formula for Calculating How Much of Your IRA You Are to Take When You Begin?
The Internal Revenue Service forces you to start taking money from the tax-deferred IRAs you own and any IRA you inherit. For IRAs you own, the mandatory withdrawals start when you turn 70 1/2. Only Roth IRAs that you own are exempt from these forced withdrawals, but if you inherit a Roth IRA, you are subject to required distributions.
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Life Expectancy Tables
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If you need to take a minimum distribution from an IRA that you own, rather than one that you inherited, you must use either the uniform lifetime table or the joint and last survivor table to figure your life expectancy. The life expectancy estimates the length of time over which you will distribute your IRA. If your spouse is at least 10 years younger than you are, you use the joint and last survivor table, which gives you a longer life expectancy because your spouse is expected to outlive you. If this situation does not apply to you, use the uniform lifetime table.
Altered Life Expectancies for Inherited IRAs
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If you inherit your IRA, you use a different table -- the single life expectancy table -- to figure your life expectancy. If the owner of the IRA died before having to start required distributions, you use your age for calculating the life expectancy. If the owner had already started taking distributions before death, use the longer of the owner's life expectancy or your life expectancy. For example, if your life expectancy using the single life expectancy table equals 42 years and the life expectancy of the owner at the time of death was 16 years, use 42 years.
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Calculating Minimum Distributions
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To figure your first required distribution, divide the value of your IRA by your life expectancy. The value of your IRA equals the amount it contained on December 31 of the previous year. For example, if your first required distribution is for the 2014 year, you would use the value of your IRA as of December 31, 2013. If your IRA value equals $300,000 and your life expectancy equals 17.4 years, divide $300,000 by 17.4 to find you have to take out at least $17,241.38.
Don't Miss Your Deadline
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In the first year that you must take money out of your IRA, you have an extended deadline for removing the money from your IRA to avoid the penalty: April 1 of the following year instead of December 31 of the present year. For example, if you have to take your first required distribution in 2012, you could take it any time before April 1, 2013. However, if you wait until the following year, you have to take two minimum required distributions: the required distribution for the past year and the required distribution for the present year. Both add to your taxable income that year.
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