I have provided basic explanations about elective withdrawals from Traditional IRAs (TIRA), withdrawals from Roth IRAs, direct IRA rollovers and indirect IRA rollovers in previous articles.
In this article, I will focus on mandatory withdrawals from a TIRA while the owner is living and, in one of my upcoming articles, I will explain mandatory withdrawals from TIRAs and RIRAs at the death of the owner. The following is a summary list of rules that apply to mandatory withdrawals from TIRAs while the owner of the account is still living
a. The RMD is calculated by adding together the value of all applicable retirement accounts – TIRAs, SEP IRAs, SIMPLE IRAs and SAR SEP IRAs – as of December 31 of the year just prior to the RMD year. This total amount is then divided by the life expectancy of the owner.
b. Appendix B, Table III (the ‘Uniform Table’) of IRS Publication 590-B (2017) contains the life expectancy information. The age to use from the life expectancy table for the first year will be either 70 or 71, depending on whether the owner’s 70th birthday occurs during Jan. 1 to June 30 of the RMD year or between July 1 and Dec. 31 of the year before the RMD year.
c. If the age difference between spouses is more than 10 years, than the IRA owner must use the life expectancy information from Table II of Appendix B.
d. The IRA owner may choose to take the RMD amount from one or more of the owner’s TIRAs. This decision is solely up to the IRA owner, not the IRA custodian.
e. The account owner must take the RMD by Dec. 31 of the RMD year. The only exception is the first year. For the first year, the latest withdrawal date is April 1 of the next year, referred to as “The Required Beginning Date” (RBD). However, remember that if the IRA owner delays to this date, he/she will have two RMDs that will have to be taken that year.
a. Insurance companies affecting TIRAs and employer retirement plans sell QLACs
b. A QLAC set up involves a single premium payment(s) from a TIRA or a retirement plan to the insurance company, which promises to pay a life annuity to the TIRA owner that will begin anytime between age 70.5 and the maximum age 85.
i. Maximum premium payments(s) for all retirement plans is $125,000
ii. Maximum premium payment from any single retirement plan is 25% of its value
c. Premium payment(s) reduce the balance of the plan(s) subject to RMDs.
As I have done for most topics in this series of articles, I will answer a few questions that I received from real IRA owners about these mandatory withdrawals from a TIRAs in a my next article. I hope that these answers will provide additional insights and help to explain how these rules for mandatory withdrawals from TIRAs, while the owner is living, apply to real-life situations.
Bruce Miller is a certified financial planner (CFP) who also is the author of Retirement Investing for INCOME ONLY: How to invest for reliable income in Retirement ONLY from Dividends and IRA Quick Reference Guide.