Mandatory distributions from your Traditional IRA the year you are 70 ½.
GENERAL RULES
- Unless you are married to someone who is more than ten years younger than you, there is one -- and only one -- table of numbers that tells you the portion of your IRA, 403(b) plan or qualified retirement plan that must be distributed to you each year after you attain the age of 70.
- The only exception to this table is if (1) you are married to a person who is more than ten years younger than you and (2) she or he is the only beneficiary on the account. In that case the required amounts are even less than the amounts shown in the table. To be exact, the required amounts are based on the actual joint life expectancy of you and your younger spouse.
TWO SIMPLE STEPS:
- Find out the value of your investments in your retirement plan account on the last day of the preceding year. For example, on New Years Day - look at the closing stock prices for December 31.
- Multiply the value of your investments by the percentage in the table that is next to the age that you will be at the end of this year. This is the minimum amount that you must receive this year to avoid a 50% penalty.
Example: Ann T. Emm had $100,000 in only IRA at the beginning of the year. She will be age 80 at the end of this year. She must receive at least $5,350 during the year to avoid a 50% penalty (5.33 times $100,000).
- UNIFORM LIFETIME DISTRIBUTION TABLE -
Age |
Payout |
Age |
Payout |
Age |
Payout |
Age |
Payout |
70 |
3.65% |
71 |
3.78% |
72 |
3.91% |
73 |
4.05% |
74 |
4.21% |
|
none |
75 |
4.37% |
76 |
4.55% |
77 |
4.72% |
78 |
4.93% |
79 |
5.13% |
none |
none |
|
80 |
5.35% |
81 |
5.59% |
82 |
5.85% |
83 |
6.14% |
84 |
6.46% |
none |
none |
85 |
6.76% |
86 |
7.10% |
87 |
7.47% |
88 |
7.88% |
89 |
8.33% |
none |
none |
|
90 |
8.78% |
91 |
9.26% |
92 |
9.81% |
93 |
10.42% |
94 |
10.99% |
none |
none |
95 |
11.63% |
96 |
12.35% |
97 |
13.16% |
98 |
14.09% |
99 |
14.93% |
100 |
15.88% |
|
101 |
16.95% |
102 |
18.19% |
103 |
19.24% |
104 |
20.41% |
none |
none |
none |
none |
105 |
22.23% |
106 |
23.81% |
107 |
25.65% |
108 |
27.03% |
109 |
29.42% |
none |
none |
|
Lifetime distributions are generally unaffected by who you name to be the beneficiary of your account after your death (unlike prior law). The only exception is if the sole beneficiary of your account is a spouse who is more than ten years younger than you. Other than that, the minimum lifetime distributions over the rest of your life will be the same whether you name a charity, your father, your mother, your sister, your brother, your child your grandchild your dog or cat. However, distributions after your death can vary depending on who the beneficiary is.
[Table computed from Table A-2 Reg. Soc. 1.401(a)(9)-9 (2002) - (rounded-up)]
The next type of retirement plans are company sponsored and are divided into two kinds,
“Defined benefit” and “defined contribution”. The defined benefit is the one that says how much your monthly retirement checks will be relative to your income and years worked. This is the type of plan currently in the news for under funding especially in the airlines and auto industries. The defined contribution plan is where money goes into a plan from you and your employer; how it does is up to you. If you “mess it up”, politically no one except you and the family care as there is no program to bail you out.
Defined Benefit
Defined benefit is just what it says; you can determine how much you will be receiving in retirement income from a schedule. It increases based on your years of service and your earned income. Many States and the Federal Governments have or have had this kind of program. Very large industrial companies may also offer this program. Any risks for funding are born by the companies sponsoring the plan.
This kind of retirement account is built with contributions from both you and your employer through payroll deductions and matching funds from the company. It says in the contract that you will be “vested” in a certain number of years, probably 7, but no more than 7 years. This means that the contributions made by the company become yours to be applied towards your retirement income, even if you terminate employment at a later date but before retirement. Example: A client of ours worked for the local school district for 12 years before terminating service. She did not withdraw any funds contributed, so when she reached age 55, she applied for and received a small retirement which will continue for the rest of her life.
Vesting does not mean that you can withdraw the money contributed by the employer, but you can withdraw the money you contributed plus interest when you terminate from the company, which of course also terminates the defined benefit agreement. Our recommendation is to leave the account in place to avoid the loss of all of the benefit of that money contributed on your behalf by your employer.
At the point of retirement, you will most likely need to choose from several payout options available from the plan. Those options are likely to include the following options:
1. Monthly payout based on your life only. This will be the largest amount but it does end when you die.
2. Take a reduced payout and have a continuation of income for your spouse or other dependent.
3. Some States have what is called a Social Security election which means that When you retire early, like police or firefighters, you may draw an increased retirement amount until you reach social security full retirement age, then the defined benefit plan account pays out less as SS begins payments, thus providing you a level income. Note that there is no relationship between SS and your pension in this context, you can start SS at age 62 and “double dip” to your full retirement age. But then you take a hit in income as SS stays the same and the pension reduces its payout.
If you find yourself having to make this election decision, review your work in your retirement planning section to see if you need the full amount now and how badly your spouse might need it if something happened to you. The surviving spouse normally needs about 75% of the joint retirement income to maintain the same standard of living.
Retirement Plans
Go To Page
1
|
3
