At What Age Must You Take Distributions From an IRA?
Individual retirement accounts were created by the federal government to offer taxpayers a powerful incentive to save for their retirement years through tax-sheltered accounts. However, the Internal Revenue Service does not allow the money to remain in IRAs indefinitely. Knowing when you have to withdraw money from your IRAs will help you avoid extra tax penalties.
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Tax-Deferred IRAs
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All tax-deferred IRAs require that you take a minimum amount of money from your IRA each year starting in the year that you turn 70 1/2 years old. Tax-deferred IRAs include traditional IRAs, SEP IRAs and SIMPLE IRAs. The first withdrawal can be taken as late as April 1 of the following year. However, future minimum distributions must be taken by the end of the calendar year. For example, if you turn 70 1/2 in 2015, you could take your first required distribution as late as April 1, 2016.
Figuring the Distribution
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The amount you have to take out depends on two factors: your life expectancy, as figured by the IRS life expectancy tables, and your IRA's value, as of the end of the prior year. The IRS has different life expectancy tables to use depending on whether you received the IRA as a beneficiary, if you have a spouse more than 10 years younger than you or if neither of these situations apply to you.
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Roth IRAs
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Roth IRAs do not require minimum distributions from the account at any point during the original owner's life. This is very beneficial because it permits the money to remain in the tax-sheltered account as long as the owner is alive. However, once the first owner dies, the beneficiaries are required to start taking money out of the account. For example, if you have your own Roth IRA, you will never be forced to take money out of the account while you are alive, but when you die, your beneficiaries will have to eventually start taking withdrawals.
Penalties
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The IRS encourages people to make sure they take their minimum amounts out of their IRAs each year by imposing a 50 percent penalty on any unwithdrawn amounts. For example, if your calculated minimum withdrawal is supposed to by $3,900 but you only took out $500, you would have $3,400 in your account that should have been taken out. Therefore, when you file your federal income taxes, you would have to pay a $1,700 penalty.
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