Lewes CPA
officeProgar & Company, P.A.
Certified Public Accounting services for businesses and individuals
Distributions from Traditional IRAs (MS Word)
Distributions from Traditional IRAs (.pdf)
Distributions from Traditional IRAs
Dear Reader,
Although advance planning is needed to help accumulate the biggest
possible nest egg in your traditional IRAs (including SEP-IRAs and
SIMPLE-IRAs), it is even more critical that you get help in planning
for distributions from these tax-deferred retirement planning
vehicles. There are four areas where knowing the ins and outs of the
IRA distribution rules can make a big difference in how much you and
your family will keep after taxes:
(1) Early distributions. If you need to take money out of a
traditional IRA before age 59-1/2, e.g., for education expenses for
children, to help make a down payment on a new home, or to meet
necessary living expenses if you retire early, any distribution to
you will be fully taxable (unless nondeductible contributions were
made, in which case part of each payout will be tax-free). In
addition, distributions before age 59-1/2 may be subject to a 10%
penalty tax. However, there are several ways that the penalty tax
(but not the regular income tax) can be avoided, including a method
that is tailor-made for individuals who retire early and need to
draw cash from their traditional IRAs to supplement other income.
(2) Naming beneficiaries. The decision concerning who you
wish to designate as beneficiary of your traditional IRA is
critically important. This decision affects the minimum amounts you
must withdraw from the IRA when you reach age 70-1/2, who will get
what remains in the account at your death, and how that IRA balance
can be paid out. What's more, a periodic review of whom you've named
as IRA beneficiaries is vital to assure that your overall estate
planning objectives will be achieved in light of changes in the
performance of your IRAs, and in your personal, financial and family
situation.
(3) Required distributions. Once you attain age 70-1/2,
distributions from your traditional IRAs must begin. If you don't
withdraw the minimum amount each year, you may have to pay a 50%
penalty tax on what should have been paid out, but wasn't.
(However, the required minimum distribution requirements are waived
for retirement plans and IRAs for calendar year 2009.) In planning
for these required distributions, your income needs must be weighed
against the desirable goal of keeping the tax shelter of the IRA
going for as long as possible for both yourself and your
beneficiaries.
(4) Tax-free distributions donated to charity. If you are at
least age 70-1/2, and are considering making a charitable gift, you
may want to consider transferring a portion of your IRA to charity.
Through 2009, you can exclude from gross income up to $100,000 a
year of otherwise taxable IRA distributions that are paid directly
to qualifying charitable organizations.
If you think it seems easier to put money into a traditional
IRA than to take it out, you're absolutely right. This is one
area where expert guidance is essential, and where I can be of
particular help to you and your family. Call me for an appointment
to review your traditional IRAs, and to analyze other aspects of
your retirement planning. We also should discuss whether you could
benefit from a Roth IRA. Roth IRAs are retirement savings vehicles
that operate under a different set of rules than traditional IRAs.