How do I determine what the minimum annual distribution for a Traditional IRA should be?

The annual minimum distribution to an IRA owner under an IRA is determined by rules for defined contribution plans and under an individual retirement annuity by rules for defined benefit plans. Under the former, the minimum distribution for a “distribution calendar year” is the owner's “account” for the year, divided by an “applicable distribution period.” An owner's distribution calendar years are the years during which he or she reaches age 70 1/2 and each subsequent year during his or her life. The account for a distribution calendar year is its value as of end of the preceding calendar year. The “applicable distribution period” changes annually and is usually taken from a Uniform Lifetime Table. It is, for example, 27.4 for the distribution calendar year during which an owner reaches age 70, 18.7 for the year of his or her eightieth birthday, and 11.4 for the year during which an owner turns 90. The minimum distribution for the first distribution calendar year must be made by April 1 of the following year (the required beginning date), and distributions for the distribution calendar year containing the required beginning date and all other years must be made by the end of the year. The minimum distribution for a year is not reduced by distributions for earlier years in excess of the minimums for those years.

For example, assume Joe, who was born on September 1, 1935, and is unmarried, has an IRA with a balance of $265,000 at the end of 2008 and $268,472 at the end of 2009. Since Joe reaches age 70 1/2 on March 1, 2009, her required beginning date is April 1, 2010, and her first distribution calendar year is 2009. The minimum distribution for 2009 is $10,000, which is $265,000 (the account at the end of 2008) divided by 26.5 (the applicable distribution period for a distribution calendar year during which an owner turns 71). This amount must be distributed to Joe not later than April 1, 2010. The minimum distribution for 2010 is $10,500, computed as the account balance at the end of 2009 ($268,472), divided by the applicable distribution period for a 72-year-old (25.6); it must be distributed not later than December 31, 2010.

Please contact one of our IRA Experts at 800-472-0646 for more information.

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