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Withdrawing money from your IRA

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What the heck is a mandatory distribution and when exactly do I have to take it?

The amount of your required minimum distribution (you'll often see it referred to as RMD) depends on your IRA account balance at the end of the year before you reach age 70½. The balance is divided by a joint life-expectancy figure for you, the account owner, and your account beneficiary, which in the case of many people is their spouse. If you've never bothered to name a beneficiary (a bad idea), recent minimum withdrawal rules automatically assume you've designated a person at least 10 years younger as your IRA beneficiary.

The IRS calculates your life expectancy based on one of three tables. You pick the one that best suits your situation. You'll find these tables in IRS Publication 590. The amount that you are expected to take out will change annually, reflecting the inevitable annual change in your account balance and your life expectancy.

Most people who reach 70½ will use the uniform lifetime distribution table, unless they have spouses who are more than 10 years younger or they don't have beneficiaries at all. Then they use the joint life table. If you inherited somebody else's IRA and therefore must take mandatory distributions no matter your age, you use the single life table. Start by finding the Internal Revenue Service's Publication 590 at The joint life and last survivor expectancy table starts on Page 88. The uniform lifetime table is on Page 102.

But what does all this mean in George Washingtons?

To figure out the amount you're required to withdraw the first year, you would divide the value of all of your IRAs as of Dec. 31 of the previous year by the life-expectancy factor for your age.

Suppose you have $200,000 in your IRA Dec. 31, 2007, and you turn 70½ Sept. 1, 2008. You would divide the account balance by 27.4 -- the life-expectancy factor in the uniform lifetime table for age 70 -- because you turned 70 in your first distribution year (which would be 2008). The result, $7,299.27, is the amount you would have to withdraw for the first distribution year.

How long can I put this off?

You can take the first required minimum distribution at any point during the calendar year in which you turn 70½. For your first distribution year, there is also a three-month grace period that ends April 1 of the following year. So, if you turn 70-and-a-half in 2008, you would have to take your first required minimum distribution by April 1, 2009.

Next: Think about consolidating multiple accounts into one.
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