The Best Ways to Take Required IRA Disbursements
Individual retirement arrangements (IRAs) are a powerful way to save for your retirement while minimizing taxes and allowing a way to provide for your heirs. Traditional and Roth IRA accounts require you to take minimum withdrawals or disbursements in certain instances and potentially pay taxes on the amount you receive. Planning the disbursements may help minimize the tax consequences and preserve more of the funds for your benefit or the benefit of your heirs.
Other People Are Reading
-
Your Own IRA
-
IRS regulations require you to begin taking distributions from your own IRA when you reach age 70 1/2. The minimum required distribution is based on your life expectancy, as well as the life expectancy of your spouse if she is 10 or more years younger. Divide the balance of your IRA account by the number of years of life expectancy from the IRS actuary tables to determine your minimum required withdrawal. You can withdraw a higher amount if you wish, but you must take a withdrawal of the minimum amount or face serious tax penalties.
Spouse's IRA
-
If your spouse dies and you are the beneficiary of her IRA account, you may treat this account as your own and continue to take withdrawals based on the schedule that she was using. A spouse who is the beneficiary may also treat the account as his own or roll the balance into his own IRA account, and continue to contribute to it if he is under age 70 1/2. At this point, he must begin to take minimum disbursements. It is best to let the money remain in the IRA as long as possible for maximum gain and tax deferral.
-
Inherited IRA
-
If you are the beneficiary of an IRA from someone other than a spouse, you cannot treat the IRA as your own. However, you can take yearly distributions from the account using your own life expectancy and not incur the 10 percent tax penalty. By taking only the minimum required disbursement, you will keep more money in the account, allowing it more time to grow tax-deferred. If you are not the beneficiary of the IRA, but receive it as part of an estate inheritance, you must generally cash it out and pay the taxes within five years, but you can use the original owner's disbursement schedule if he had begun taking distributions at the time of his death.
Roth IRA
-
The owner of a Roth IRA does not have to take minimum required distributions at any age, and can keep contributing to the account until his death. The same rule applies to his spouse. She can commingle the account with her own if she likes as well. A non-spousal beneficiary must either withdraw the balance within five years and pay the taxes, or may stretch the withdrawals out over his own life expectancy, paying taxes on the yearly disbursement. It is best to leave the money in the account as long as possible and take the withdrawals over life expectancy.
-
