Retirement Plan  Minimum Distribution
Minimum
distributions must begin at age 70 1/2 for almost all retirement
plans. The distributions are based on your life expectancy using IRS
tables.
You may be sure you're going to make it to 100, but the IRS
has other ideas. Don't mess with this rule because, if you are late
in taking that first distribution, there is a 50 percent penalty on
the amount of the required minimum distribution. That'll hurt worse
than paying an early distribution penalty! The IRS wants to begin to
collect taxes from you that you were able to defer all those years
while you had the money growing.
You
are required by law to start minimum distributions by April 1 of the
year after you turn 70 1/2 but you will need to take your second
distribution that year also. Receiving both payments in one year
could bump you into a higher tax bracket. Consider taking the first
payment by December 31 of the previous year instead.
Term
Certain Method and Recalculation Method
There are two
methods you can use to determine what your minimum distributions
will be.
For those of you with a math phobia, get yourself an
advisor to help wit the calculations. You have to choose between the
term certain method and the recalculation method:

Term
certain method. The simplest to use, you value your
account as of December 31 the year before
distributions must begin and then figure out how
much you need to take out. You will divide the
account dollars by your life expectancy or the
combined life expectancy of you and your beneficiary
using IRS tables to determine those numbers.

Recalculation method. This requires that you
recalculate your life expectancy or the combined
life expectancies of you and your beneficiary each
year. This method, although more work for you,
guarantees that you won't run out of money. The
older you become, the longer the IRS tables say you
may live. So your required distribution actually
decreases with time.
Using
either method is going to require that you recalculate
the distribution amount each year because the value of
your IRA changes. The decision of which method to use is
complicated by your choice of beneficiaries, spousal or nonspousal. Again, I repeat: Get some advice because,
once you choose, you are stuck with that distribution
method.
If
you have multiple IRAs, you must use the combined value
to determine the minimum distribution. You need only use
one account to withdraw funds form though. If you have
not rolled over all of your qualified retirement plans
into an IRA, you must make minimum distribution
calculation for each plan.
This
can be complicated stuff! You may need help in making
your decision. At times, a trusted advisor is the only
way to go. You may need to seek out a financial planner
or a CPA to help. Also, the custodian of your IRA or
retirement plans should be there to help and to remind
you that you are getting close to age 70 and need to
make some decisions.
So
what if you have a pot of money that is not in a
retirement plan? How long will it last? Here's a very
simple calculation: If every year you only take out 4 to
5 percent and it is earning at least 6 percent, you'll
always have money left in your pot. If your portfolio is
returning over 10 percent a year, you can withdraw 8
percent a year. There are many calculators online as
well as software available to help you make your money
last, and your financial advisor can run annual
calculations for you as well.