Required Withdrawals from IRA Accounts

You want a carefree retirement.

You want a carefree retirement.

It's never too early to start contributing to an Individual Retirement Account (IRA). When retirement is decades away, it doesn't seem that important, but ask any older person how quickly the time flies. You can begin taking distributions at age 59 1/2, and, depending on the type of IRA, you're required to make minimum distributions yearly by the age of 70 1/2. If you inherited an IRA, you must begin taking required minimum distributions right away.

Traditional IRA

You can start taking distributions from a traditional IRA upon reaching the age of 59 1/2. According to the Internal Revenue Service, you must begin receiving distributions from your IRA by April 1 of the year following the year in which you turn 70 1/2, and these distributions must be taken in subsequent years by December 31. If you're still working past the age of 70 1/2, you can't contribute any monies into your traditional IRA, although you can contribute to a Roth IRA if you meet the income limitations. If you fail to take required minimum distributions from your traditional IRA, you'll get hit with a 50-percent tax penalty on the amount you didn't withdraw.

SEPs, SIMPLEs and SARSEPs

Certain other types of IRAs follow the same required minimum distribution rule as traditional IRAs. These include Simplified Employee Pension Plans, or SEP-IRAs, which your employer sets up for you or you can set up as a self-employed person; the Savings Incentive Match Plan for Employees Individual Retirement Account, or SIMPLE, generally set up by small businesses for employees; and the SARSEP plan, which refers to a SEP set up prior to 1997.

Roth IRAs

You can't deduct a Roth IRA from your income taxes, but you also don't ever have to take distributions. The income limitation for 2012 for couples filing jointly for full contribution eligibility is $173,000, increasing to $178,000 in 2013. The income limitation for single filers for 2012 for full contribution eligibility is $110,000, increasing to $112,000.

Inherited IRAs

If you inherited an IRA, much depends on your relationship to the decedent. Even if you inherit a Roth IRA, you must take required minimum distributions, but you won't be taxed on them. If you inherited an IRA from your spouse, you can roll it over into your own IRA, taking required minimum distributions by the age of 70 1/2 at the latest. However, if you're under the age of 59 1/2 and you roll over the IRA, you'll be charged a 10-percent penalty if taking early distributions, which won't happen if you don't roll it over. Your other option is transferring your spouse's IRA to an inherited IRA. If your spouse was over 70 1/2 at the time of death, you must take required minimum distributions by the end of year in which he died. If under 70 1/2 at the time of death, you don't need to take distributions until the date he would have reached that age. If you inherited an IRA from anyone other than your spouse, you must take required minimum distributions the year following the year of the original owner's death.

 

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