Traditional IRA owners do not get a tax break when they withdraw funds from their accounts at age 70 1/2, but they avoid a penalty tax they would otherwise incur by not withdrawing the funds. They must still pay standard income tax on the amount of the withdrawal.Continue Reading
The amounts an IRA owner must begin to withdraw annually from his retirement account are known as required minimum distributions. Failure to take required minimum distributions when necessary results in a penalty tax of 50 percent of the amount that an IRA owner should have withdrawn. An IRA owner must initiate the first required minimum distribution by April 1 of the year after he turns 70 1/2, the second distribution by Dec. 31 of the same year, and the rest by Dec. 31 of each subsequent year.
IRA owners calculate required minimum distribution amounts by dividing the balance in the IRA on Dec. 31 of the previous year by a distribution period based on their life expectancy according to one of three IRS tables. The uniform lifetime table is for IRA owners whose spouse is no more than 10 years younger or who has more than one beneficiary. The joint and last survivor table is for those whose sole beneficiary is a spouse over 10 years younger. The single life expectancy table is for beneficiaries of IRA accounts. Although a plan administrator is able to help with calculating required minimum distributions, the IRA owner is responsible for calculating the correct amount of withdrawals.Learn more about Financial Planning