After age 70-1/2, you’re required to start taking IRA distributions. The IRA distribution tables are based on the age you reach on your birthday during the calendar year. For example, if you reach 75 in 2002, that would be your age for calculating your minimum withdrawal required by December 31, 2002. Under the Uniform Distribution Table, which the IRS released in 2001, a 75-year-old with a beneficiary usually has a joint life expectancy of 21.8 years. In 2002, you’d have to take out at least 1/21.8 of your IRA balance, or 4.58715%.
That fraction is applied to your IRA balance at the end of the previous year. If you have $500,000 in your IRA at year-end 2001, in 2002 you’d have to take out at least $22,936 to avoid a 50% penalty on any shortfall. The rules are a bit trickier when you begin to take distributions. Here, the key age is 70-1/2. Suppose, for example, you turned 70-1/2 in the first half of 2001. Later in 2001, you’d reach your 71st birthday.
Your first distribution must be taken by April 1 of the following year, 2002. Because you turned 71 in 2001, you’d use the joint life expectancy for a 71-year-old, which is 25.3 years. Your first required minimum distribution would be 1/25.3 of your IRA balance at year-end 2000.
By the end of 2002 you’d have to take a second distribution, at least 1/24.4 of your IRA balance at year-end 2001, because the joint life expectancy for a 72-year-old is 24.4 years and you turn 72 in 2002.
On the other hand, suppose you turn 70-1/2 in the second half of 2001, so you have your 70th birthday in 2001. You still have to take two distributions in 2002, by April 1 and December 31, based on your year-end IRA amounts of 2000 and 2001. Now, though, the required minimum distributions are 1/26.2 and 1/25.3, using the life expectancies of a 70-year-old and a 71-year-old, respectively.
