IRA Required Minimum Distribution Rules in Pennsylvania

Many benefits exist for having a tax-deferred individual retirement account, or IRA, in Pennsylvania, including the tax-deductibility of contributions and the tax-deferred growth of investments. Unfortunately, you cannot keep your IRA intact forever. The Internal Revenue Service, or IRS, requires you to take regular distributions from your IRA when you reach a certain age.

Required Distributions

While the IRS wants you to keep your money in your IRA until you retire, once you reach age 70 and 6 months, you have to begin taking withdrawals. Since the IRS typically doesn't have the opportunity to tax your funds in an IRA account, it forces you to take out a portion to assess the necessary fees. The IRS bases the amount of your distribution on your life expectancy, with the intent of you drawing out most of the money during your lifetime, rather than passing it to your beneficiaries. Upon reaching the retirement age, the IRS prohibits you from making further contributions to your Pennsylvania IRA.

Penalties

The penalty for keeping your money in an IRA longer than you should is severe. As a Pennsylvania resident, you do not have to pay additional Pennsylvania penalty taxes, even though the state does have its own state laws regarding IRA penalties. However, the IRS will levy a penalty tax of 50 percent of the amount of any "excess accumulations" you have in your IRA, which refers to the money that you needed to take out as part of your required distribution. For example, if your required distribution is $4,000, the IRS will tax you $2,000 if you fail to take your distribution.

Taxes

Another unfortunate aspect of mandatory Pennsylvania IRA withdrawals is that you will owe tax on your distributions, even though they are compulsory. You must include any amount you take out of your IRA, whether for a required distribution or a voluntary one, as part of your gross income for the year. Depending on your taxable income and filing status, you could owe the IRS anywhere from 10 percent to 35 percent of your distribution, at the time of publication. As a Pennsylvania resident, you will also have to pay Pennsylvania state income tax on any IRA distributions. At the time of publication, the Pennsylvania income tax rate for individuals is 3.07 percent across all income levels.

Roth IRAs

The required minimum distribution rules apply to all types of Pennsylvania IRAs, with the exception of Roth IRAs. If you own a Roth IRA, you do not have to take minimum distributions, regardless of your age, since you already paid tax on your original contributions. Nonetheless, you are still subject to the terms and conditions of your individual account.

References

• IRS.gov: IRS Publication 590 -- Are Distributions Taxable?
• IRS.gov: IRS Publication 590 -- When Must You Withdraw Assets? (Required Minimum Distributions)
• IRS.gov: IRS Publication 590 -- Excess Accumulations (Insufficient Distributions)
• Bankrate.com; Deadline Looms For Mandatory IRA Withdrawals; Kay Bell; March 23, 2009
• Pennsylvania Department of Revenue: Tax Rates for Individuals
• IRS: 2010 Tax Table

Resources

• Pennsyvlania Department of Revenue: 2010 Personal Income Tax Forms