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Required IRA withdrawals areeasy and can benet estate planning
Important guidelines for IRA owners and beneciaries.
When you reach age 701, you must shortly begin to takerequired minimum distributions (RMDs) rom yourTraditional IRA. The same may be true i you have recentlyinherited a Traditional IRA. The ollowing inormationis designed to help you understand what RMDs are andwhat options you may have so you can determine theappropriate steps to take.
What are required minimum distributions?
The tax laws contain a rule that aects everyone who hasattained age 701 and who owns various types o retire-ment plans, including Traditional IRAs, and everyone whohas inherited a retirement plan account as a benefciary.This rule generally requires that at least a certain minimumamount be withdrawn every year rom the retirementaccount. O course, you may always withdraw more,subject to taxes.*It is extremely important to set up and maintain a paymentschedule that complies with this minimum annual distri-bution requirement. Failure to take RMDs may result inan IRS-imposed penalty equal to 50% o the amount thatshould have been withdrawn. The good news is that theIRS regulations on RMDs make it simple to calculateyour distributions.
When do IRA owners need to withdrawRMDs?
I you own a Traditional IRA, you must begin taking yourminimum distribution by December 3 o each calendaryear, beginning with the year you reach age 701. However,or the frst year, you have until April  o the year ater youturn age 701 to take your distribution.It is important to remember that i you take advantageo this extension, you will need to take two RMDs in thecalendar year ater the calendar year in which you reachage 701: one or the year in which you turned age 701and one or the next calendar year.
Why does the IRS require IRA ownersto begin taking RMDs?
When you established your Traditional IRA, your contribu-tions may have been tax deductible or the year in whichthe contribution was made. In addition, earnings haveaccumulated tax deerred, that is, ree rom income taxes.To make sure you do not deer paying taxes on retirementsavings indefnitely, the IRS mandates that you beginreceiving money rom your Traditional IRA once youreach age 701. These distributions, or RMDs, are subject toordinary income taxes. Benefciaries receiving distributionswill also owe ordinary income tax on their distributions.
*Ater-tax assets within an IRA account are not subject to taxes.
Investor Education
 
Calculating your RMD
Calculating RMDs is relatively easy or IRA owners. Basedon your age, you simply divide your IRA balance (as oDecember 3 o the previous year) by the appropriatedivisor ound on the IRS’s Uniorm Lietime Table (to theright). The same table applies to everyone, regardless owho they have named as benefciaries, with a single excep-tion. I your sole designated benefciary is your spouse andis more than 0 years younger than you, you may use a jointlie expectancy divisor to achieve a smaller RMD amount iyou choose. Ask your tax or fnancial advisor or details.An IRA owner must calculate the RMD separately or eachIRA that he or she owns, but can withdraw the total amountrom one or more o the IRAs.
Let’s look at an example
In this illustration, an investor is turning age 7 this year andhas a $00,000 IRA account balance as o December 3 olast year:December 3account valueIRS distribution period÷ 26Required minimum distribution=8
UNIFORM LIFETIME TabLE
Clientage*DistributionperiodClientageDistributionperiod7027.4939.6726.5949.7225.6958.67324.7968.7423.8977.67522.9987.7622.0996.7772.2006.37820.305.9799.5025.5808.7035.287.9044.9827.054.5836.3064.2845.5073.9854.8083.7864.093.4873.403.882.72.9892.022.690.432.490.842.920.25+.9
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As o /3 o the given year.Source: Treasury Regs. Sec. .40(a)(9)–9.
Don’t need the income from your RMDs? Consider these options:
1 Converting to a Roth IRA
Since there are no required minimum distributions with a Roth IRA or theaccount owner or beneiciary spouse,* more o your IRA assets can beneit rom tax-ree growth.
 Donate the RMD amount to a charity tax free
Available or 0, this provision allows retirees who areage 701 or older to donate up to $00,000 tax ree rom their IRA, including their RMD amount. Bydonating the RMD to a qualiied charity, IRA owners can enjoy the satisaction o knowing that they arecontributing to a worthy cause while avoiding taxes. Additionally, directing assets tax ree rom an IRAto satisy charitable wishes is typically more tax eicient than claiming a charitable tax deduction on theincome tax return. Consult with a tax proessional or more inormation.
 Use RMDs to fund a  college savings program
Grandparents and other amily members not relyingon required distributions to meet daily income needs may preer to use these unds to help und collegeeducation or loved ones. Although the RMDs will generally have to be reported on the tax orm as income,once those unds are invested in a 59 program, they can grow and be distributed ree o taxes.
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Spousal benefciaries have the option o electing to treat an inherited Roth IRA as their own and avoiding required minimum distributions.
 
What are the rules for people who inherit IRAs?
I you are the benefciary o an IRA and inherit that IRA upon the owner’s death, the RMD rules that apply to you willvary, depending upon your relationship to the decedent when the IRA owner died.
IF OU aRE a OUEIF OU aRE NOT a OUE
I you inherit your IRA rom a deceased spouse and youare the sole benefciary, you have additional options:•
ou cn tret the IRa s your own
(provided certainconditions are met) and begin taking RMDs when youreach age 701. You may want to consider this option i:
—
It is easier to consolidate IRAs into one account orrecordkeeping purposes, or 
—
The deceased IRA account owner had alreadyreached age 701 and had been taking RMDs. Arollover into your own account can allow you to post-pone RMDs until you reach age 701.•
ou cn remin s the eneciry on the decedent’sIRa*
(otherwise known as an “inherited” or a “benef-ciary” IRA). You may want to consider this option i: 
—
You are younger than age 591 and may need toaccess IRA unds to meet current expenses. Normally,distributions taken rom IRA accounts beore age591 are subject to a 0% penalty. Because o anexception that applies in the case o death, a penaltywould not apply. However, distributions rom theIRA would still have to be reported as income ortax purposes.
—
You are older than your spouse, who died beorereaching age 701. Leaving the unds in the dece-dent’s name as a beneiciary IRA would allow youto postpone taking RMDs until the decedent wouldhave turned age 701.Options or persons other than a spouse are limited.Specifcally, you cannot treat the IRA account o thedeceased as your own. In general,
if the IRa ownerdied fter he or she egn withdrwing his or herown RMDs,
you must begin withdrawing your ownRMDs rom the inherited IRA by December 3 o theyear ollowing the year in which the IRA owner died(and each year thereater). However, there is someexibility regarding how much must be withdrawn romthe account. Your RMD amount can be calculated bydividing the balance o the account as o the precedingDecember 3 by your own lie expectancy (determinedunder IRS mortality tables). For benefciaries whoare younger than the deceased IRA account owner(children, or example), this will result in a smaller RMD,which can help preserve the tax benefts o the IRA.The less you are required to withdraw rom the account,the more you have remaining to grow in a tax-deerredashion. For each subsequent year, you repeat the samecalculation, except you subtract one rom the original lieexpectancy divisor or each year that passes.
If the IRa owner died efore he or she egnwithdrwing his or her own RMDs
, you generallyhave at least two options:• You may use the method above, in which your RMDsare based on your own lie expectancy and begin onor beore December 3 o the year ollowing the year inwhich the IRA owner died.• You can elect to withdraw the entire account on orbeore the end o the calendar year containing the fthanniversary o the IRA owner’s death. For example,i you choose this alternative method, you would notbe required to withdraw any amount rom the accountuntil the fth year.
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I you remain a benefciary on your spouse’s account, you will need to begin taking required minimum distributions at some point. Generally, the amount othe RMD is calculated by dividing the balance as o December 3 o the previous year by the appropriate divisor ound on the IRS’s Single Lie ExpectancyTable. This table can be ound in IRS Publication 590.
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