OverviewThe most recent IRS regulations substantially simplify rules for required minimum distributions (RMD) from IRAs. There are life expectancy tables that allow smaller distributions to be taken over a longer period. The calculation of the RMD has been simplified by eliminating certain variables. Rules regarding separate accounts with different beneficiaries have been clarified. Some flexibility is now available to change beneficiaries and split accounts, allowing the heirs to retain more of the tax-deferred income for a longer period of time. Beginning Date Requirements IRA owners must take at least a minimum amount from their IRA each year, starting with the year they reach age 701/2. If a taxpayer fails to take a distribution in the year they reach 701/2 they can avoid a penalty by taking that distribution no later than April 1 of the following year. However, that means the IRA owner must take two distributions in the following year, one for the year in which they reached age 701/2 and one for the current year. If an IRA owner dies after reaching age 701/2, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. Muliple IRA AccountsFor purposes of determining which account the minimum distribution is to be withdrawn from, all Traditional IRA accounts owned by an individual are treated as one, and the minimum distribution can be taken from one or any combination of the accounts. If the owner chooses not to take the minimum distribution from each account, it is not uncommon for IRA trustees to require written certification that the owner took the minimum distribution from other accounts. Determining the DistributionThe minimum amount that must be withdrawn in a particular year is the value of the IRA account divided by the number of years the IRA owner is expected to live. If there are multiple IRA accounts, this calculation is done for each one and then the results are totaled to determine the RMD for the year. Then the total required distribution may be taken from one account or partly from each account or any combination. Determining Value: The value is what the account was worth at the end of the business day on Dec. 31 of the PRIOR year. Generally, IRA account trustees will provide this information on the year-end statements or on IRS Form 5498. Determining the Distribution Period: The IRS provides two tables for use in determining the IRA owner’s life expectancy (referred to as “distribution period” by the IRS). Generally, IRA owners will use the “Uniform Lifetime Table” to determine their “distribution period.” If the IRA owner’s spouse is the sole beneficiary (on all the IRA accounts), the Joint and Last Survivor Table may be used. However, the Uniform Lifetime Table will always produce the smallest minimum distribution, unless the spouse is more than 10 years younger than the IRA account owner. Example: The IRA owner is 75 and from the “Uniform Lifetime Table,” the owner’s life expectancy is 22.9 years. Determining Age: Use the owner’s oldest attained age for the year of the distribution. Example: Suppose an IRA owner takes a distribution in February, when the owner’s age is 74, but later in November, he turns 75. For purposes of determining the owner’s life expectancy, the oldest attained age for the year, 75, would be used in computing the minimum distribution. The same rule is used for the spouse beneficiary, if applicable. Example: The IRA account owner is age 75 and the owner’s spouse, who is the sole beneficiary of the accounts, is age 72. Since the spouse is less than 10 years younger than the IRA account owner, the Uniform Lifetime Table will produce the smallest required distribution. From the table, we determine the owner’s life expectancy to be 22.9.The value of the IRA account at the end of the prior year is $87,000. The minimum distribution is $3,799 ($87,000 / 22.9). Timing of the DistributionThe minimum distribution computation determines the amount that must be withdrawn during the calendar year. The distributions can be taken all at once, sporadically, or in a series of installments (monthly, quarterly, etc.), as long as the total distributions for the year are at least the minimum required amount. Amounts that must be distributed (required distributions) during a particular year are not eligible for rollover treatment. Maximum DistributionThere is no maximum limit on distributions from a Traditional IRA, and as much can be withdrawn as the owner wishes. However, if more than the required distribution is taken in a particular year, the excess cannot be applied toward the minimum required amounts for future years. Underdistribution PenaltyDistributions that are less than the required minimum distribution for the year are subject to a 50% excise tax (excess accumulation penalty) for that year on the amount not distributed as required. Example: The owner’s required minimum distribution for the calendar year was $10,000, but the owner only withdrew $4,000. The excess accumulation penalty is $3,000, computed as follows: 50% of ($10,000 - $4,000). If the failure to withdraw the minimum amount or part of the minimum amount was due to reasonable error, and the owner has taken, or is taking, steps to remedy the insufficient distribution, the owner can request that the penalty be excused.