Life Expectancy and an IRA Payout

When you turn 70 1/2, you're required to start taking minimum annual distributions from your traditional IRA. The required minimum distribution each year is based on your life expectancy, as figured by the IRS. You can withdraw more then the RMD, but never less. If you have, say, a $3,000 RMD and only withdraw $2,000, you owe 50 percent of the remaining $1,000 as a tax penalty.


The IRS life expectancy tables are in the appendix to Publication 590. If you're the account owner, you use Table II or III, depending on your marital status. If you're 73 and unmarried, for instance, your life expectancy is 24.7 years. If you have $500,000 in the account, divide 24.7 into that, getting $20,242. That's your minimum withdrawal for the year. As your IRA investments grow or shrink year to year, you have to repeat this calculation every year from then on.

Roth IRA

With a Roth IRA, life expectancy has no effect on your payouts over the years. Unlike a traditional IRA, you pay tax on Roth contributions and everything you withdraw is tax-free. There's no RMD with a Roth: in any given year, you can withdraw as much as you like, or nothing at all. If your finances permit it, you can go your entire life without touching your Roth and pass it intact to your beneficiaries.


If you inherit an IRA from your spouse, you can treat it as your own, contributing to the account and not taking RMDs until you turn 70 1/2. You can't do this if you inherit from a non-spouse or you share your spouse's IRA with other beneficiaries. In that case, you take RMDs based on the life expectancies in Table I, rather than the owner's age. If you inherit a Roth, you have to take RMD payouts, just like a traditional IRA.

The Five-Year Rule

If you're an IRA beneficiary and the original owner died before turning 70 1/2, you have the option to take all your payouts sooner. With this alternative, you withdraw enough money to empty the account within five years. There are no RMDs in this approach: you could, for example, wait four years then take one big payout in the fifth. As this cuts short years of potential interest on the account, this is usually not the most profitable option.

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