Minimum IRA distribution

[Questionguy101]

Taxpayer has three IRA accounts. Lets say:

IRA account A has $20,000 in it.

IRA account B has $30,000 in it.

IRA account C has $40,000 in it.

She is single and 71 years old. On Table III of the 'Uniform Lifetime' Table which is for 'unmarried owners', the distribution period of her age is 26.5.

So she divides the combined total of her 3 IRA accounts by 26.5.

$90,000/ 26.5 = $3,396.23.

So $3,396.23 is the minimum distribution that she has to withdraw from her IRA in 2007. Is my calculation correct?

Also, can she withdraw the $3,396.23 from only one of the IRA accounts? Or she has to withdraw the prorated amount from each of the IRA accounts?

[DaveO]

Your calculation is correct

And she may withdraw the funds from any account or combination of accounts.

[OldJack]

And I always suggest they round up to be sure they have taken enough in case there is some error.

Actually, in this case the single lady is 71 and should be taking out as much as needed considering the lower tax brackets. This due to the fact that someone sooner or later is going to have to pay income taxes on the full amounts so why not take as much out now and each year in as low a tax bracket as possible. Just because she takes it out doesn't mean she has to spend it.

[Gretel]

Another option

If your client is in the mood of charitable giving, part of her RMD can go directly to charitable organization and will not be taxable to her. Of course, financial institute needs to be willing to do that.

[OldJack]

She is single and 71 years old.

So $3,396.23 is the minimum distribution that she has to withdraw from her IRA in 2007. Is my calculation correct?

Since you said she is 71 makes me wonder if this is the first year of required minimum distributions and if this year she needs to take 2 distributions due to that old 70½ rule. Better check it out.

[Questionguy101]

Since you said she is 71 makes me wonder if this is the first year of required minimum distributions and if this year she needs to take 2 distributions due to that old 70½ rule. Better check it out.

What two distributions? Can you elaborate on it a little bit more?

[OldJack]

What two distributions? Can you elaborate on it a little bit more?

Well... basically the year one turns 70½ a distribution must be taken before April 15 of the following year based upon the value of the account the year-end before age 70½. Then at the end of the year age 71 she has to take a distribution based upon the value of the account at the year-end the age of 70½. If she didn't take the first distribution in the year she turned age 70½ she must take it before April 15 of the year she is age 71, but she would then have to take a distribution before Dec.31 for the year-end age 71. That would make 2 distributions in the same year on different account valuation years. Its a one time thing.

Example: Taxpayer turned 70½ on Sept. 1, 2005, she would have to take a distribution based upon the value as of 12/31/2004 not later than April 15, 2006. If she did not take the distribution before January 1, 2006 she would have 2 distributions to make in the year 2006. One for the year 2005 and one for the year 2006. The first distribution would be based on 12/31/2004 value and the regular distribution needed for the year 2006, must be distributed before 12/31/2006, would be based on the value as of 12/31/2005.

[Gene V]

I really don’t want to get technical, Oldjack done such a good job explaining the required minimum distribution. But, in all the dates that he said April 15—should read April 1 of the next year.

[OldJack]

But, in all the dates that he said April 15—should read April 1 of the next year.

Thanks Gene... you caught me not looking it up. Just proves that without TheTaxBook my knowledge is worthless. (don't tell Brad that I said that about his book!)

[Chief]

Old Jack

I will tell you what Brad told me. Tape a twenty dollar bill on your monitor and he will send Tron to pick it up.