When Must I Withdraw IRA Assets?
(Required Distributions)

You cannot keep funds in a traditional IRA indefinitely. Eventually they must be distributed. If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. See Excess Accumulations, later. The requirements for distributing IRA funds differ, depending on whether you are the IRA owner or the beneficiary of a decedent's IRA.

Distributions not eligible for rollover. Amounts that must be distributed (required distributions) during a particular year are not eligible for rollover treatment.

IRA Owners

If you are the owner of a traditional IRA, by April 1 of the year following the year in which you reach age 70 1/2, you must either:

1. Receive the entire balance in your IRA, or
2. Start receiving periodic distributions from your IRA.

April 1 of the year following the year in which you reach age 70 1/2 is referred to as the required beginning date.

Periodic distributions. If you do not receive the entire balance in your traditional IRA by the required beginning date, you must start to receive periodic distributions over one of the following periods:

1. Your life,
2. The lives of you and your designated beneficiary (defined later),
3. A period that does not extend beyond your life expectancy, or
4. A period that does not extend beyond the joint life and last survivor expectancy of you and your designated beneficiary.

Distributions by the required beginning date. If you choose to receive periodic distributions, you must receive at least a minimum amount for each year starting with the year you reach age 70 1/2 (your 70 1/2 year). If you do not (or did not) receive that minimum amount in your 70 1/2 year, then you must receive distributions for your 70 1/2 year by April 1 of the next year. See Minimum Distributions, later.

Distributions after the required beginning date. The minimum required distribution for any year after your 70 1/2 year must be made by December 31 of that later year.

Example. You reach age 70 1/2 on August 20, 2001. For 2001 (your 70 1/2 year), you must receive the minimum required distribution from your IRA by April 1, 2002. You must receive the minimum required distribution for 2002 (the first year after your 70 1/2 year) by December 31, 2002.

If you do not receive your minimum required distribution for 2001 until 2002, you will have to pay tax on both your 2001 and your 2002 distributions on your 2002 return.

Designated beneficiary. A designated beneficiary, for these purposes, is any individual you name to receive your traditional IRA upon your death.

Multiple individual beneficiaries. If as of the end of the year following the year in which the owner dies there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply.

1. All of the beneficiaries are individuals, and
2. The account or benefit has not been divided into separate accounts or shares for each beneficiary.

Beneficiaries

If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA depend on whether distributions that satisfy the minimum distributions requirement have begun. See Distributions begun before owner's death and Owner dies before distributions have begun, later.

Date the designated beneficiary is determined. Generally, the designated beneficiary is determined on the last day of the calendar year following the calendar year of the IRA owner's death. Any person who was a beneficiary on the date of the owner's death, but is not a beneficiary on the last day of the calendar year following the calendar year of the owner's death (because, for example, he or she disclaimed entitlement or received his or her entire benefit), will not be taken into account in determining the designated beneficiary.

Surviving spouse. If the designated beneficiary is the owner's surviving spouse, and he or she dies before he or she was required to begin receiving distributions, the surviving spouse will be treated as if he or she were the owner of the IRA.

Trust as beneficiary. A trust cannot be a designated beneficiary even if it is a named beneficiary. However, the beneficiaries of a trust will be treated as having been designated as beneficiaries if all of the following are true.

1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus.
2. The trust is irrevocable or will, by its terms, become irrevocable upon the death of the employee.
3. The beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable from the trust instrument.
4. The plan administrator has been provided with either a copy of the trust instrument with the agreement that if the trust instrument is amended, the administrator will be provided with a copy of the amendment within a reasonable time, or all of the following.
1. A list of all of the beneficiaries of the trust (including contingent and remaindermen beneficiaries with a description of the conditions on their entitlement).
2. Certification that, to the best of the employee's knowledge, the list is correct and complete and that the requirements of (1), (2) and (3) above, are met.
3. An agreement that, if the trust instrument is amended at any time in the future, the employee will, within a reasonable time, provide to the plan administrator corrected certifications to the extent that the amendment changes any information previously certified.
4. An agreement to provide a copy of the trust instrument to the plan administrator upon demand.

If the beneficiary of the trust is another trust and the above requirements for both trusts are met, the beneficiaries of the other trust will be treated as having been designated as beneficiaries for purposes of determining the distribution period.

Determining when distributions have begun. Distributions to the deceased owner generally are considered as having begun on the required beginning date, even if payments actually began before that date. This means that if the IRA owner dies before the required beginning date, distributions generally are not considered to have begun before the owner's death.

Exception. If distributions in the form of an annuity irrevocably began to the IRA owner before the required beginning date and began over a permitted period, distributions are considered to have begun before the owner's death, even if the owner died before the required beginning date. This exception applies only if the annuity provided for periodic distributions at intervals of no more than 1 year over one of the permitted periods listed earlier under Periodic distributions.

Distributions begun before owner's death. If periodic distributions that satisfy the minimum distribution requirements have begun and the owner dies, any undistributed amounts must be distributed at least as rapidly as under the method being used at the owner's death.

Exception. This rule does not apply if the designated beneficiary is the owner's surviving spouse who becomes the new owner by choosing to treat the IRA as his or her own IRA. See What If I Inherit an IRA, earlier. In that case, the surviving spouse can designate beneficiaries and should follow the required distribution rules for owners of traditional IRAs as discussed under IRA Owners, earlier.

Owner dies before distributions have begun. If the owner dies before distributions that satisfy the minimum distribution requirements have begun, the entire interest must be distributed under one of the following two rules.

• Rule 1. By December 31 of the fifth year following the year of the owner's death.
• Rule 2. Over the life of the designated beneficiary or over a period not extending beyond the life expectancy of the designated beneficiary. See Table I (Single Life Expectancy) (For Use by Beneficiaries) in Appendix C.

The terms of the traditional IRA can specify whether Rule 1 or 2 applies, or they can permit either the owner or beneficiary to choose which rule applies. If the owner or beneficiary can choose which rule applies, the choice must generally be made by December 31 of the year following the year of the owner's death. This is because distributions generally must begin under Rule 2 by that date.

Under Rule 2, at least a minimum amount must be distributed each year.

No rule specified or chosen. If no rule has been specified or chosen, distribution must be made under Rule 2 unless Rule 1 applies. Rule 1 only applies if no beneficiary is designated by the end of the year following the owner's year of death.

Rule 2 picked and spouse is not the beneficiary. If Rule 2 has been specified or chosen and the beneficiary is not the surviving spouse, distribution must begin by December 31 of the year following the year of the owner's death.

Rule 2 picked and spouse is the beneficiary. If Rule 2 has been specified or chosen and the beneficiary is the surviving spouse (and he or she did not choose to treat the IRA as his or her own), distribution must begin by the later of the following two dates.

• December 31 of the year the IRA owner would have reached age 70 1/2.
• December 31 of the year following the year of the owner's death.

Spouse dies before receiving distribution. If the surviving spouse dies before the date distributions to the surviving spouse must begin, distributions can be made to the spouse's beneficiary as if the spouse were the IRA owner.

Spouse remarried. However, if the surviving spouse has remarried since the owner's death and the new spouse is designated as the spouse's beneficiary, the rule stated in the preceding paragraph would not apply to the new spouse.

Minimum Distributions

Minimum distributions from a traditional IRA may be figured differently depending on whether they are paid out of an individual retirement account or an individual retirement annuity.

Account. If you are the owner of a traditional IRA that is an individual retirement account, you or your trustee must figure the minimum amount required to be distributed each year. See Figuring the Minimum Required Distribution, later.

Annuity. If your traditional IRA is an individual retirement annuity, special rules apply to figuring the minimum required distribution. For more information on rules for annuities, get section 1.401(a)(9)-6 of the proposed regulations. These proposed regulations can be read in many libraries and IRS offices.

Figuring the Minimum Required Distribution

Figure your minimum required distribution for each year by dividing the IRA account balance (defined later) as of the close of business on December 31 of the preceding year by the applicable distribution period or life expectancy (defined later).

Distributions during the owner's lifetime (and in the year of the owner's death if the owner died after his or her required beginning date). Minimum required distributions during your lifetime, and in the year of your death if you die after your required beginning date, are based on a distribution period that can be determined using Table III (Distribution Period) (For Use by Owners) in Appendix C. The distribution period (which table you use) is not affected by your beneficiary's age unless your sole beneficiary is your spouse who is more than 10 years younger than you are.

To figure the minimum required distribution for 2002, divide your account balance at the end of 2001 by the distribution period from the table. This is the distribution period listed next to your age (as of your birthday in 2002) in Table III in Appendix C, unless your sole beneficiary is your spouse who is more than 10 years younger than you. For an example, see Example 1 under Applicable life expectancy or distribution period, later.

Sole beneficiary other than spouse who is more than 10 years younger. If your sole beneficiary is not your spouse or is your spouse, but your spouse is not more than 10 years younger than you, use the distribution period from Table III (Distribution Period) (For Use by Owners) in Appendix C.

Your distribution period is listed in Table III, next to your age as of your birthday in 2002.

You figure your minimum required distribution for 2002 by dividing your account balance at the end of 2001 by your distribution period from Table III.

Sole beneficiary spouse who is more than 10 years younger. If your sole beneficiary is your spouse and your spouse is more than 10 years younger than you, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy).

The life expectancy to use is the joint life and last survivor expectancy listed where the row or column containing your age as of your birthday in 2002 intersects with the row or column containing your spouse's age as of his or her birthday in 2002.

You figure your minimum required distribution for 2002 by dividing your account balance at the end of 2001 by the life expectancy from Table II (Joint Life and Last Survivor Expectancy) (For Use by Owners whose spouses are more than 10 years younger) in Appendix C. For an example, see Example 2 under Applicable life expectancy or distribution period, later.

Distributions after the owner's death. If the designated beneficiary is an individual, such as the owner's spouse or child, minimum required distributions for years after the year of the owner's death generally are based on the beneficiary's single life expectancy. This rule applies whether or not the death occurred before the owner's required beginning date. If the owner's beneficiary is not an individual (for example, if the beneficiary is the owner's estate), minimum required distributions for years after the owner's death depend on whether the death occurred before the owner's required beginning date.

Beneficiary an individual. To figure the minimum required distribution for 2002, divide the account balance at the end of 2001 by the appropriate life expectancy from Table I (Single Life Expectancy) (For Use by Beneficiaries) in Appendix C. Determine the appropriate life expectancy as follows.

• Spouse as sole designated beneficiary. Use the life expectancy listed in the table next to the spouse's age (as of the spouse's birthday in 2002). If the owner died before the year in which he or she reached age 70 1/2, distributions to the spouse do not need to begin until the year in which the owner would have reached age 70 1/2.
• Other designated beneficiary. Use the life expectancy listed in the table next to the beneficiary's age as of his or her birthday in the year following the year of the owner's death, reduced by one for each year since the year following the owner's death.

A beneficiary who is an individual can elect to take the entire account by the end of the fifth year following the year of the owner's death. If this election is made, no distribution is required for any year before that fifth year.

Beneficiary not an individual. Determine the minimum required distribution for 2002 as follows.

• Death on or after required beginning date. Divide the account balance at the end of 2001 by the appropriate life expectancy from Table I (Single Life Expectancy) (For Use by Beneficiaries) in Appendix C. Use the life expectancy listed next to the owner's age as of his or her birthday in the year of death, reduced by one for each year since the year of death.
• Death before required beginning date. The entire account must be distributed by the end of the fifth year following the year of the owner's death. No distribution is required for any year before that fifth year.

IRA account balance. The IRA account balance is the amount in the IRA at the end of the year preceding the year for which the minimum required distribution is being figured. The IRA account balance is adjusted by certain contributions and distributions, as explained below.

Contributions. The IRA account balance is increased by any contributions or forfeitures made after the end of the year which are allocated to the account balance for the year. This means that if you are figuring your minimum required distribution for 2002, any contribution made in 2002 that is designated as being for 2001 is added to the IRA account balance as of the end of 2001.

For this purpose, if an amount is rolled over from one IRA to another and the rollover contribution is made in the calendar year after the year of the distribution, the contribution is deemed to have been made in the year of the distribution. This means that if you received a distribution from one IRA in December of 2001 and rolled it over tax free into another IRA in January of 2002, that rollover contribution would be added to the account balance of the second IRA as of the end of 2001.

Distributions. The IRA account balance is reduced by any distributions made after the end of the year which are considered to have been made during the year. This can happen if any part of the minimum required distribution for the first distribution calendar year (the first year for which distributions are required) is made in the second distribution calendar year. In this case, when determining the minimum required distribution for the second distribution calendar year, the IRA account balance is reduced by any distribution made in that second distribution calendar year that is needed to satisfy the minimum distribution requirements for the first distribution calendar year. The first distribution calendar year is generally the year the owner reaches age 70 1/2. The next year is the second distribution calendar year. See Example 1, later.

Applicable life expectancy or distribution period. The applicable distribution period or life expectancy is:

• The life expectancy listed on Table I (Single Life Expectancy) (For Use by Beneficiaries), in Appendix C,
• The life expectancy listed on Table II (Joint Life and Last Survivor Expectancy) in Appendix C, or
• The distribution period listed on Table III (Distribution Period) (For Use by Owners), in Appendix C.

Example 1. Laura was born on October 1, 1931. She is an unmarried participant in a qualified defined contribution plan. She reaches age 70 1/2 in 2002. Her required beginning date is April 1, 2003. As of December 31, 2001, her account balance was $25,300. No contributions were made or forfeited after that date that are allocated to 2001. No rollover amounts were received after that date on her behalf which were distributed in 2001, 2002, or 2003. Using Table III in Appendix C, the applicable distribution period for someone her age (71) is 25.3 years. Her minimum required distribution for 2002 is $1,000 ($25,300 × 25.3). That amount is distributed to her on April 1, 2003.

Her account balance as of December 31, 2002, is $26,400. No contributions are made or amounts forfeited after that date that are allocated to 2002. The account balance of $26,400 is reduced by $1,000. The $1,000 is the amount of the minimum required distribution for 2002 made on April 1, 2003. Consequently, she uses an account balance of $25,400 to determine her minimum required distribution for 2003.

Example 2. Joe, born October 1, 1930, reached 70 1/2 in 2001. His wife (his beneficiary) turned 56 in September 2001. He must begin receiving distributions by April 1, 2002. Joe's IRA account balance as of December 31, 2000, is $29,000. Because Joe's wife is more than 10 years younger than Joe, Joe uses Table II in Appendix C. Based on their ages at year end (December 31, 2001), the joint life expectancy for Joe (age 71) and his wife (age 56) is 29 years. The minimum required distribution for 2001, Joe's first distribution year (his 70 1/2 year), is $1,000 ($29,000 × 29). This amount is distributed to Joe on April 1, 2002.

Joe's IRA account balance as of December 31, 2001, is $29,725.

To figure the minimum amount that must be distributed for 2002, the IRA account balance (as of December 31, 2001) of $29,725 is reduced by the $1,000 minimum required distribution for 2001 that was made on April 1, 2002. The account balance for determining the minimum required distribution for 2002 is $28,725.

Which Table Do I Use To Determine My Minimum Required Distribution?

As mentioned under Applicable life expectancy or distribution period, earlier, there are three different tables. You use only one of them to determine your annual minimum distribution for each traditional IRA. Determine which one to use as follows.

Table I (Single Life Expectancy) (For Use by Beneficiaries) in Appendix C. If you are the owner's sole designated beneficiary, you do not need to take distributions until the year in which the owner would have reached age 70 1/2 if both of the following apply.

1. You were the owner's spouse when he or she died, and
2. The owner had not reached age 70 1/2 when he or she died.

Once that year occurs, or if the owner had reached the age of 70 1/2, use Table I for years after the year of the owner's death.

If the IRA owner has died and you are an individual, such as the owner's child, and you are the owner's designated beneficiary, but you are not both the owner's spouse and sole designated beneficiary, use Table I for years after the year of the owner's death.

If the IRA owner has died and you are the owner's estate or otherwise not an individual, and the owner died on or after the required beginning date, use Table I for years after the year of the owner's death.

Table II (Joint and Last Survivor Expectancy) (For Use by Owners whose spouses are more than 10 years younger) in Appendix C. If you are the IRA owner, and the periodic payments are for your life and the life of your spouse who is more than 10 years younger than you, use Table II. This table is also used for 2001 if the owner died in 2001 after the required beginning date and the owner would have used this table had he or she not died.

If you are an alternate payee under a qualified domestic relations order, you may use this table or Table III.

Table III (Distribution Period) (For Use by Owners) in Appendix C. Use Table III if you are the IRA owner and the periodic payments are for either:

• Your life only, or
• Your life and the life of a designated beneficiary who is anyone other than your spouse who is more than 10 years younger than you.

This table is also used for 2001 if the owner died in 2001 after the required beginning date and the owner would have used this table had he or she not died.

If you are an alternate payee under a qualified domestic relations order, you may use this table or Table II.

No table (5-Year Rule). If the IRA owner has died and you are not an individual, and the owner died before the required beginning date, do not use a table. Take the entire distribution by the end of the fifth year following the year of the owner's death.

This 5-year rule applies if no beneficiary is designated by the end of the year following the year of the IRA owner's death.

More extensive tables. If an age you are using is not on Table I, II, or III, more extensive tables are in Publication 939.

What Age(s) Do I Use With the Table(s)?

The age or ages to use with the tables are as follows.

Table I (Single Life Expectancy) (For Use by Beneficiaries) in Appendix C. If you are an individual figuring your first distribution by your required beginning date, use your age as of your birthday in the year distributions must begin. This is usually the calendar year immediately following the calendar year of the owner's death. If you are a spouse who is a sole designated beneficiary, it may be the year in which the owner would have reached age 70 1/2. After the first distribution year, your life expectancy is reduced by one for each subsequent year.

If you are not a designated beneficiary, and there was no designated beneficiary, use the owner's life expectancy for his or her age as of his or her birthday in the year of death, and reduce it by one for each subsequent year.

If you are not an individual, and the owner's death was on or after the required beginning date, use the owner's life expectancy for his or her age as of his or her birthday in the year of death, and reduce it by one for each subsequent year.

Table II (Joint and Last Survivor Expectancy) (For Use by Owners whose spouses are more than 10 years younger) in Appendix C. For your first distribution by the required beginning date, use your age and the age of your designated beneficiary as of your birthdays in the year you become age 70 1/2. Your combined life expectancy is at the intersection of your ages.

If you are figuring your minimum required distribution for 2002, use your ages as of your birthdays in 2002. For each subsequent year, use your and your spouse's ages as of your birthdays in the subsequent year.

Table III (Distribution Period) (For Use by Owners) in Appendix C. For your first distribution by your required beginning date, use your age as of your birthday in the year you become age 70 1/2.

If you are figuring your minimum required distribution for 2002, use your age as of your birthday in 2002. For each subsequent year, use your age as of your birthday in the subsequent year.

If you are using this table as an alternate payee under a qualified domestic relations order, use the employee's current age and the employee's required beginning date.

Miscellaneous Rules for Minimum Required Distributions

The following rules may apply to your minimum required distribution.

Installments allowed. The yearly minimum required distribution can be taken in a series of installments (monthly, quarterly, etc.) as long as the total distributions for the year are at least as much as the minimum required amount.

More than one IRA. If you have more than one traditional IRA, you must determine the minimum required distribution separately for each IRA. However, you can total these minimum amounts and take the total from any one or more of the IRAs.

Example. Sara, born August 1, 1930, became 70 1/2 on February 1, 2001. She has two traditional IRAs. She must begin receiving her IRA distributions by April 1, 2002. On December 31, 2000, Sara's account balance from IRA A was $10,000; her account balance from IRA B was $20,000. Sara's brother, age 64 as of his birthday in 2001, is the beneficiary of IRA A. Her husband, age 78 as of his birthday in 2001, is the beneficiary of IRA B.

Sara's minimum required distribution from IRA A is $395 ($10,000 × 25.3 (the distribution period for age 71 per Table III in this chapter). The amount of the minimum required distribution from IRA B is $791 ($20,000 × 25.3). The minimum required distribution that must be withdrawn by Sara from her IRA accounts by April 1, 2002, is $1,186 ($395 + $791).

More than minimum received. If, in any year, you receive more than the required minimum amount for that year, you will not receive credit for the additional amount when determining the minimum required amounts for future years. This does not mean that you do not reduce your IRA account balance. It means that you cannot count the amount distributed in one year that is more than the amount required to be distributed as a distribution of an amount required to be distributed in a later year. However, any amount distributed in your 70 1/2 year will be credited toward the amount that must be distributed by April 1 of the following year.

Example 1. Justin became 70 1/2 on December 15, 2001. Justin's IRA account balance on December 31, 2000, was $38,400. He figured his minimum required distribution for 2001 was $1,466 ($38,400 × 26.2). By December 31, 2001, he had actually received distributions totaling $3,600, $2,134 more than was required. Justin cannot use that $2,134 to reduce the amount he is required to withdraw for 2002, but his IRA account balance must be reduced by the full $3,600 to figure his minimum required distribution for 2002. Justin's reduced IRA account balance on December 31, 2001, was $34,800. Justin figured his minimum required distribution for 2002 is $1,375 ($34,800 × 25.3). During 2002, he must receive distributions of at least that amount.

Example 2. Assume the same facts as in Example 1, except that Justin received the distribution of $3,600 on March 15, 2002. Because the distribution was received before April 1, 2002, he can count $1,466 of that distribution as his required distribution for his 70 1/2 year (2001). He can count the remainder ($2,134) as part of his required distribution for 2002. To figure his required distribution for 2002, Justin must reduce his IRA account balance by $1,466, rather than $3,600, to figure his minimum required distribution for 2002. Therefore, his reduced IRA account balance as of December 31, 2001, was $36,934. His minimum required distribution for 2002 is $1,460, rather than the $1,375 figured in Example 1. Because Justin has already received a distribution of $2,134 for 2002, no more is needed to satisfy his minimum distribution requirement for 2002.

Annuity distributions from an insurance company. Special rules apply if you receive distributions from your traditional IRA as an annuity purchased from an insurance company. See sections 1.401(a)(9)-5 and 54.4974-2 of the proposed regulations. These proposed regulations can be found in many libraries and IRS offices.

Permitted failures to make minimum distributions. The minimum required distribution for one year may be delayed:

1. Where a plan is not legally permitted to distribute to an alternate payee all or part of your benefit because a domestic relations order (described earlier under Rollover From Employer's Plan Into an IRA) is being reviewed to determine if it is a qualified domestic relations order (QDRO). The delay can be up to 18 months from the date on which the first payment is required to be made under the domestic relations order.
2. Where annuity payments under an annuity contract have been reduced or suspended because the life insurance company that issued the contract is in state insurer delinquency proceedings.

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