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Distributions from Traditional IRA
Traditional IRA –
2011 & 2012 Traditional/Roth IRA Contribution Limits
Traditional & Roth IRAs Plan Name Standard Limit Catch-up Limit (Age 50 and older ) Traditional $5,000 $6, Roth* $5,000 $6,
*MAGI Limits: Single: $58,000 - $68, Married Filing Joint: $92,000 – 112, ADJUSTED GROSS INCOME PHASE-OUT RANGES
- Contribution is deductible if
- not already involved in a retirement plan or
- below phase amounts
IRA Catch-up Contributions IRA holders age 50 or older may contribute an amount in excess of the basic annual contribution, as follows:
$1,000 extra
Additional QRP Assets May be Rolled to IRAs Under the terms of this legislation, after-tax assets held in QRPs, will now be eligible for rollover to an IRA.
IRA Distribution, Rollover Changes Certain IRA balances will now be eligible to be distributed and rolled over to qualified retirement plans, including 401(k), 403(b). The IRS has been directed to update the life expectancy tables for RMD purposes. The IRS is granted statutory authority to extend the 60-day period for completion of a rollover, where circumstances beyond the control of the IRA holder prevent timely
completion.
These provisions will result in greater flexibility for IRA holders in distributing and moving assets, both among IRAs and among various other retirement
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arrangements. As a result, IRAs will be more popular than ever as vehicles for accumulating, holding and directing taxpayers' retirement assets
IRA Contributions
Return and possibly contribution is taxed deferred
If withdraw before 59.5 years old, withdrawal will be taxed and with a 10% penalty on withdrawal
DISTRIBUTIONS FROM TRADITIONAL IRA
- Withdrawals can be made before 59. without penalty (will be taxed) if
- Disability
- College Tuition
- Purchase of first home ($10,000)
- Payment of medical expenses
- Medical insurance premiums - must receive unemployment for 12 wks
- Death distribution to beneficiary
- Withdrawals for Substantially Equal Amounts using the following methods
- Life Expectancy Method
- Amortization method
- Annuitization Method
SUBSTANTIALLY EQUAL PAYMENTS
Substantially equal payments must continue until age 59.5 or if started after age 54.5 they must last at least 5 years.
Amount of payment method cannot change without a retroactive imposition of a 10% penalty on all prior pay outs (unless you become disabled or die)
- All pay outs are taxed as income Federal, State & Local (No FICA)
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REQUIRED MINIMUM DISTRIBUTIONS FROM
TRADITIONAL IRAs, 401-K’s
- After age 70.5 it is required that a certain minimum amount must be removed from an individual’s Traditional IRA every year.
- Must receive first distribution no later than April 1 of the calendar year following the year in which the individual turns 70.5.
- If one takes less than the required amount, a 50% penalty is imposed on the difference between what was taken and the required minimum amount
- Minimum required distributions are based on the prior year-end balance of IRA.
RMD – Required Minimum Distributions at age 70. If Draw Less Than RMD Then 50% Penalty on Amount Not Withdrawn
RMDs AFTER AGE 70.
- Uniform Lifetime Table is normally used RMD is recalculated every year
Assume a $5 million Balance on prior Dec. 31 and 6% growth rate RMD are taken on January 1
Age Balance Factor RMD
70 $5 million / 27.4 = $182, (Uniform Lifetime Table) 71 $5,106,569 / 26.5 = Recalculation 72 $ / =
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*** Use Uniform Lifetime Table with spouse beneficiary unless the spouse is more than 10 years younger than the owner, then use the Joint Life Table.
- Assume spouse is the IRA beneficiary and the owner is 70.5 and the spouse is 55 years old.
Age Balance Factor RMD
70 $5 million / 31.1 = $160, (Joint Life Table) 71 $ / 30.1 = $ Recalculation 72 $
Required Beneficiary Distributions – If Owner Dies
Before Age 70.
- If IRA owner dies before 70.5 years old the pay out to the beneficiary can be made two ways: - 5-year pay out. The IRA must be distributed to the beneficiary no later than the December 31st^ of the 5th^ year following the IRA owner's death. - Life Expectancy Payments. Payments start no later than December 31st^ of year following the IRA owner's death. Term certain method must apply if beneficiary is not surviving spouse - spouse can use term certain or recalculation method. This is default method. - Surviving Spouse Options. Surviving spouse beneficiary has same options as above plus
Leave IRA as is and take withdrawals and start taking RMDs (Required Minimum Distributions) when deceased spouse would have turned 70.
Fresh start - roll the IRA over into his or her own IRA, then start taking Distributions at age 70.5.
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*** Use Uniform Lifetime Table with spouse beneficiary unless the spouse is more than 10 years younger than the owner, then use the Joint Life Table.
- Assume spouse is the IRA beneficiary and the owner is 70.5 and the spouse is 55 years old.
Age Balance Factor RMD
70 $5 million / 31.1 = $160, (Joint Life Table) 71 $ Recalculation 72 $
AFTER IRA OWNER DIES & RMDs HAVE COMMENCED
- Nonspousal Beneficiary - After IRA dies the RMD to the beneficiary is based upon the beneficiary's individual life expectancy, starting no later than December 31st^ of the year following the year of death. Each RMD thereafter is based on that life expectancy less one. (Table below)
- Spousal Beneficiary - RMD for the spouse after the death of the IRA owner is based on the surviving spouse's life expectancy, starting no later than December 31st of the year following the year of death. This life expectancy is recalculated each year.
- The Spouse can always select fresh start.
- Death without a designated beneficiary - If the IRA owner has no beneficiary or has a trust or estate as beneficiary, RMDs are calculated using the deceased IRA owner's life expectancy, starting no later than December 31st^ of the year of death. Each RMD thereafter is based on that life expectancy less one year.
Designating a Beneficiary - The beneficiary does not have to be determined until distributions to the designated beneficiary must begin. So, if there are a number beneficiaries, some may disclaim themselves.
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Payout to Beneficiary at Death of Owner After RMD Has Commenced
- Non-Spouse Beneficiary – Age 48 Owner Dies at 73
Age Balance Factor RBD
48 $5,295,756 / = $ (Single Life Expectancy Table) 49
Spouse As Beneficiary – Owner Dies at 73
Spouse could roll over IRA into his or her own and begin RMD when he or she reaches 70.
Spouse could continue with owner IRA distributions
Spouse can use his or her single life expectancy recalculation method
Spouse Distributions Using His Or Her Single Life Expectancy (Recalculation) Spouse is 58 years old
Age Balance Factor RBD
58 $5,381,291 / 27.0 = $199, (Single Life Table) 59 $5,492,903 / 26.1 = $ Recalculation
*** No Beneficiary (estate or charity are beneficiaries) and death of owner after age 70.5 - RMD is calculated over owner’s life had he or she lived (term certain)
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2012 Joint Life Expectancy Table
Age of your beneficiary
Your age
70 71 72 73 74 75 76 77 78 79 80
40 44.0 44.0 43.9 43.9 43.9 43.8 43.8 43.8 43.8 43.8 43.
41 43.1 43.0 43.0 43.0 42.9 42.9 42.9 42.9 42.8 42.8 42.
42 42.2 42.1 42.1 42.0 42.0 42.0 41.9 41.9 41.9 41.9 41.
43 41.3 41.2 41.1 41.1 41.1 41.0 41.0 41.0 40.9 40.9 40.
44 40.3 40.3 40.2 40.2 40.1 40.1 40.1 40.0 40.0 40.0 40.
45 39.4 39.4 39.3 39.3 39.2 39.2 39.1 39.1 39.1 39.1 39.
46 38.6 38.5 38.4 38.4 38.3 38.3 38.2 38.2 38.2 38.1 38.
47 37.7 37.6 37.5 37.5 37.4 37.4 37.3 37.3 37.2 37.2 37.
48 36.8 36.7 36.6 36.6 36.5 36.5 36.4 36.4 36.3 36.3 36.
49 35.9 35.9 35.8 35.7 35.6 35.6 35.5 35.5 35.4 35.4 35.
50 35.1 35.0 34.9 34.8 34.8 34.7 34.6 34.6 34.5 34.5 34.
51 34.3 34.2 34.1 34.0 33.9 33.8 33.8 33.7 33.6 33.6 33.
52 33.4 33.3 33.2 33.1 33.0 33.0 32.9 32.8 32.8 32.7 32.
53 32.6 32.5 32.4 32.3 32.2 32.1 32.0 32.0 31.9 31.8 31.
54 31.8 31.7 31.6 31.5 31.4 31.3 31.2 31.1 31.0 31.0 30.
55 31.1 30.9 30.8 30.6 30.5 30.4 30.3 30.3 30.2 30.1 30.
56 30.3 30.1 30.0 29.8 29.7 29.6 29.5 29.4 29.3 29.3 29.
57 29.5 29.4 29.2 29.1 28.9 28.8 28.7 28.6 28.5 28.4 28.
58 28.8 28.6 28.4 28.3 28.1 28.0 27.9 27.8 27.7 27.6 27.
59 28.1 27.9 27.7 27.5 27.4 27.2 27.1 27.0 26.9 26.8 26.
60 27.4 27.2 27.0 26.8 26.6 26.5 26.3 26.2 26.1 26.0 25.
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61 26.7 26.5 26.3 26.1 25.9 25.7 25.6 25.4 25.3 25.2 25.
62 26.1 25.8 25.6 25.4 25.2 25.0 24.8 24.7 24.6 24.4 24.
63 25.4 25.2 24.9 24.7 24.5 24.3 24.1 23.9 23.8 23.7 23.
64 24.8 24.5 24.3 24.0 23.8 23.6 23.4 23.2 23.1 22.9 22.
65 24.3 23.9 23.7 23.4 23.1 22.9 22.7 22.5 22.4 22.2 22.
66 23.7 23.4 23.1 22.8 22.5 22.3 22.0 21.8 21.7 21.5 21.
67 23.2 22.8 22.5 22.2 21.9 21.6 21.4 21.2 21.0 20.8 20.
68 22.7 22.3 22.0 21.6 21.3 21.0 20.8 20.6 20.3 20.1 20.
69 22.2 21.8 21.4 21.1 20.8 20.5 20.2 19.9 19.7 19.5 19.
70 21.8 21.3 20.9 20.6 20.2 19.9 19.6 19.4 19.1 18.9 18.
Source: IRS Joint and Last Survivor Table; 26 CFR Part 54 Section 401(a)(9)-
ROTH IRA
Roth IRA - contributions are not tax deductible. Money grows tax free and is not taxed when withdrawn if
- cannot withdraw until age 59.
- money must be in Roth IRA for at least 5 years
- single AGI < $110,
- married filing jointly AGI< $173,
- can pull out original contribution without penalty
- do not have to withdraw at 70.5 years
- total contribution between Roth &
Roth IRA –
Eligible to make a regular contribution to a Roth IRA even if you participate in a retirement plan maintained by your employer. The contribution is not tax deductible on income tax return, but the return is not taxable if withdrawn after age 59.5.
Contributions can be as much $5,000 (If you're 50 or older by the end of the year, add another $1,000 beginning in 2006 – same Traditional IRA.)
There are just two requirements.
Table I (continued) (Single Life Expectancy) (For Use by Beneficiaries)
- 19 64.0 47 37.
- 20 63.0 48 36.
- 21 62.1 49 35.
- 22 61.1 50 34.
- 23 60.1 51 33.
- 24 59.1 52 32.
- 25 58.2 53 31.
- 26 57.2 54 30.
- 27 56.2 55 29.
- 56 28.7 84 8. Age Life Expectancy Age Life Expectancy
- 57 27.9 85 7.
- 58 27.0 86 7.
- 59 26.1 87 6.
- 60 25.2 88 6.
- 61 24.4 89 5.
- 62 23.5 90 5.
- 63 22.7 91 5.
- 64 21.8 92 4.
- 65 21.0 93 4.
- 66 20.2 94 4.
- 67 19.4 95 4.
- 68 18.6 96 3.
- 69 17.8 97 3.
- 70 17.0 98 3.
- 71 16.3 99 3.
- 72 15.5 100 2.
- 73 14.8 101 2.
- 74 14.1 102 2.
- 75 13.4 103 2.
- 76 12.7 104 2.
- 77 12.1 105 1.
- 78 11.4 106 1.
- 79 10.8 107 1.
- 80 10.2 108 1.
- 81 9.7 109 1.
- 82 9.1 110 1.
- 83 8.6 111+ 1.
