How Do They Calculate Minimum Distributions After Age 70 1/2 on an IRA?
Starting in the year you turn 70 1/2, the Internal Revenue Service mandates that you begin removing minimum amounts of money from your individual retirement account each year or you will have to pay tax penalties for failing to withdraw the required amount. You calculate the minimum distribution by dividing your IRA's value by your life expectancy.
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Uniform Life Expectancy Table
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You use the uniform life expectancy table to figure your life expectancy unless your spouse is at least 10 years younger than you. The tables are found in Appendix C of IRS Publication 590 and are updated annually. To use the uniform life expectancy table, find your age in the first column and your life expectancy in the next column of the same row.
Joint Life and Last Survivor Table
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The joint life and last survivor table is only used if you are at least 10 years older than your spouse. To use the table, find your age in the first row across the top of the table. Next, find your spouse's age in the first column. Then, find where the row for your age and the column for your spouse's age intersect; that cell is your life expectancy for the purposes of calculating your minimum required distribution.
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Account Value
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The larger your account value, the more you have to withdraw. The IRS figures the size of your account based on its value at the end of the prior year. Your financial institution will provide this information if you do not have it in your records. When figuring your minimum required distributions, you have to calculate the required amount separately from each IRA. For example, if you have an IRA worth $34,000 and your life expectancy is 12.4 years, divide $34,000 by 12.4 to get $2,741.94.
Exception for Roth IRAs
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Roth IRAs do not require you to take a required minimum distribution from the account at any age, including 70 1/2. You cannot roll over a minimum required distribution to a tax-deferred IRA, but you can roll over the remainder of the account. For example, if you have $25,000 in an IRA and are required to take out $2,000, you would not be able to roll over that $2,000, but you could roll over the remaining $23,000. When you roll over the money, you have to include it as part of your taxable income. However, you can take tax-free qualified distributions.
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