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When You Turn Age 70˝
Just as Uncle Sammy was concerned about taking IRA funds too quickly when you were a youngster (prior to age 59˝), he is just as concerned about you taking these funds out too slowly when you turn age 70˝ (not that he doesn't wish you the best of health).

That being the case, you generally must begin taking minimum required distributions (MRD) each calendar year beginning after you reach age 70˝. Remember that the IRS has been waiting a long time to collect taxes on your IRA account. They'll now wait no longer. And in order to get your attention, there is a big penalty associated with not taking your minimum required distributions. Failure to withdraw at least the minimum amount required by law during a particular taxable year generally results in the imposition of an excise tax equaling 50% of the shortfall between the actual amount withdrawn and the minimum distribution required by law. Ouch.

If you have multiple IRAs, MRD must be computed for each IRA separately. Under new distribution rules recently announced by the IRS, your custodian will compute MRD beginning in 2002, and the results will be reported to you and to the IRS. Questions? Ask the USA IRS PDQ about your IRA MRD! (Sorry, we couldn't resist.) The IRS, at one time, required an IRA owner having more than one IRA to calculate a minimum distribution with respect to each IRA and actually take a minimum distribution from each IRA annually. But by administrative pronouncement that rule has been changed. Although the MRD will still be calculated by your custodians separately for each IRA, these amounts may be added together and the total distribution taken from any one or more of your IRAs. Therefore, you may satisfy the MRD rules by taking from one IRA the amount required to satisfy the minimum distribution requirement for other IRAs.

MRD Computations -- The Sequel
Some people believe that MRD is merely a misspelling of "Nerd." This is not true, despite what follows.

In general, minimum required distributions must begin by the "required beginning date" and, under the new rules, must be paid based on a factor found in a table that uses the attained age of the IRA owner as of December 31 of the distribution year. That table assumes the IRA beneficiary is a person who is exactly 10 years younger than the IRA owner. As a result, most folks will be required to take a much smaller distribution than under the old rules. This means the table produces the lowest possible distributions for most folks -- and that prolongs both the tax-deferred compounding, and the life of the IRA. The only exception to using the required table is for those who are married to a spouse more than 10 years younger than they are. Those folks can use a joint life expectancy table, which produces an even lower MRD.

The "required beginning date" of a participant is April 1 of the calendar year following the calendar year in which the account owner attains age 70˝. As you can imagine, the computations can get a bit sticky, and are based on IRS tables and computation formulas that only that nerdy guy named Ernie who sat in the back of your math class can understand.

« After Age 59˝ and Before Age 70˝

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