IRA Withdrawal Rules & Life Expectancy

by Cam Merritt

The tax benefits of an individual retirement arrangement, or IRA, exist to help you save money for your own retirement, not build a family fortune that you can pass down through the generations. For that reason, the tax code requires you to start making withdrawals once you reach a certain age. The amount you have to take out each year depends on your life expectancy.

IRA Basics

In a traditional IRA, you contribute money to an investment account, watch it grow through investment returns and then make withdrawals -- called distributions -- later in life. You don't pay income taxes on the money you contribute, nor on your investment profits. When you take distributions, the money is taxed as regular income. You generally must wait until you reach age 59.5 before you can withdraw any money, although you aren't required to take distributions at that age. Once you reach 70.5, however, you must take distributions. You can designate one or more "beneficiaries" of your IRA -- people to whom your IRA will pass if you die with money left in the account.

Required Minimum Distributions

At age 70.5, you must begin taking a certain amount out of your traditional IRA every year. The Internal Revenue Service calls this amount your "required minimum distribution." To calculate this amount, start with the total balance of your IRA. The figure to use is the balance of the account on the preceding December 31. Use the Life Expectancy Tables in IRS Publication 590 to determine how much of the balance you must take out. For example, suppose that in 2010, you were 72 years old and unmarried, and on December 31, 2009, you had $195,000 in your IRA. According to the Life Expectancy Tables, your "distribution period" was 25.6 years. Divide $195,000 by 25.6, and you get a required minimum distribution of $7,617.19. You're free to take a bigger distribution, but if you take less than the minimum, you might have to pay a 50-percent penalty on the shortfall.

Life Expectancy Tables

IRS Publication 590 includes two Life Expectancy Tables for IRA account owners. Use the "Uniform Lifetime" table if you're unmarried, if you're married but your spouse is not more than 10 years younger than you, or if you're married but your spouse is not the sole beneficiary of your IRA. Use the "Joint Life and Last Survivor Expectancy" if you are married to someone more than 10 years younger than you and that person is the sole beneficiary of your IRA.

Beneficiary Life Expectancy

A third table in Publication 590, "Single Life Expectancy," applies to certain beneficiaries. A surviving spouse who is the sole beneficiary of an IRA can simply assume ownership of the IRA. It becomes his or her IRA, subject to the same distribution rules that applied to the now-deceased owner. In all other cases, individual beneficiaries must begin taking distributions soon after the owner's death, using the "Single Life Expectancy" table as a guide.

Roth IRA

The rules are different for a Roth IRA. In a Roth IRA, your initial contributions are fully taxable, but your distributions are untaxed. As with a traditional IRA, you can begin taking money out of a Roth IRA at age 59.5, but there are no required minimum distributions -- at age 70.5 or ever. You can leave the whole thing to your beneficiary, if you want. However, if there's any money left in a Roth IRA when it passes to a beneficiary, that person must take distributions according to his or her own life expectancy.