As a participant in a traditional, tax-advantaged IRA, you may already be aware that you will be required to make an annual IRA minimum withdrawal upon reaching the required beginning date (currently 70½ years old). The accurate amount of your IRA minimum distribution will be estimated according to an IRS formula that divides up your entire balance by your estimated expectancy of your life.
Normally, the documentation and the important calculations that are required for you to start receiving your IRA withdrawals are done by your trustee or your IRA provider, but the responsibility to make sure that the payments for your IRA minimum withdrawal is done correctly is your responsibility. Therefore, it is necessary to figure out how they work. In addition to this, if you are having multiple IRA accounts and you intend to utilize the IRA minimum distribution from only one, you must know how you can calculate the IRA required withdrawal all by yourself.
Here are some of the most commonly asked questions concerning the IRA minimum withdrawals:
Q: If I withdraw an amount that is less than my IRA minimum withdrawal, am I liable to pay a penalty?
A: Of course. According to IRS tax code, you will be charged a 50% IRA penalty on the funds that were not withdrawn. This adds to the federal and /or state income taxes that will be payable on the amount of the minimum IRA distributions that you make. The only way that you can omit this rule is, if you as an account holder can show that the decreased or omitted IRA minimum withdrawal was due to reasonable fault and that you are taking necessary measures to repair the condition. As you might expect, it can be difficult to prove this to the IRS, so it's best to just take the IRA minimum distribution in the first place.
Q: Am I required to make a minimum IRA distribution from every IRA account?
A: If you have your retirement funds in additional IRA accounts, you will be accountable for calculating the minimum IRA distribution that is necessary for each account and getting the payment equal to its amount. However, know that you are not required to take your IRA minimum distribution from each account. Assume that you hold three different IRAs and your total IRA minimum distribution amounts to $15,000. You can choose to have the whole amount withdrawn from a single account. If you have an IRA that is not performing up to the mark and you intend to consume the IRA quickly, this flexibility can be of quite helpful.
Q: Can I rollover my IRA minimum distribution to another tax-advantaged retirement account?
A: No, a required IRA minimum withdrawal is not an eligible rollover distribution. This would defeat the major purpose of the requirement in the first place as the IRA minimum withdrawal requirement has been set up to make sure that the government starts collecting the income tax dollars it has allowed you to defer over decades. You can of course invest the withdrawal outside of a retirement account into a variety of withdrawal options.
Lose a Fortune on Your 401k Rollover
If you do not do any of these correctly:
- Opt for a distribution rather than direct transfer
- Rollover company stock to an IRA
- Choose to rollover to a Roth IRA
- Rollover to your new employer’s 401k
- Rollover post-tax contributions