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Understanding the IRA Withdrawal Rules

Understanding the IRA Withdrawal Rules

For Traditional IRA owners: If you’re going to turn age 70 1/2 this year (2011), the IRS requires that you begin taking minimum withdrawals from your account. Here’s what our Miami accounting firms wants you to know about IRA Withdrawal Rules.

Minimum IRA Withdrawal Rules Basics

Accounting Miami firms need to let clients know that f you’re near that magic age of 70 1/2, then you probably already know that the tax law requires you to take mandatory payouts each year. If you turn 70 1/2 this year (2011), our Miami accounting service points out you must take your first minimum withdrawal no later than April 1 of 2012 wants you to know about IRA Withdrawal Rules.

Tapping your IRA, of course, means you’ll also get stuck with the resulting income-tax bills, according to VieraCPA a Miami CPA Firm. In fact, the whole reason your friends in Congress enacted the minimum IRA Withdrawal Rules was to force you to hand over the government’s share of your IRA sooner rather than later. If you fail to take at least the minimum withdrawal amount each year, you’ll owe a 50% penalty on the shortfall (consult your Accounting Miami CPA). Of course, you can always take out more than the minimum and pay the extra income taxes. In fact, the IRS will be delighted if you do.

Our Miami accounting service wants you to keep in mind, the IRA Withdrawal Rules also apply to simplified employee pension, or SEP, accounts as well as SIMPLE IRAs, since they’re both considered IRAs for this purpose. But Roth IRA owners are exempt from the minimum IRA Withdrawal Rules as long as the original account owner is alive.

Since nothing the IRS does is ever simple, knowing when you need to start taking mandatory withdrawals, is but of course tricky and as such consult our Accounting services in Miami. As you approach 70 1/2, you’re faced with a choice. You can take your first minimum withdrawal during the year you turn 70 1/2, or you can take it by April 1 of the year after you turn 70 1/2. Then for each subsequent year, you must take at least the required IRA Withdrawal Rules by Dec. 31 of that year.

Why does it matter when you start tapping your IRA? Well, it can have significant tax implications. Accounting Miami CPA Viera states “After all, if you don’t take your initial minimum withdrawal during the year you turn 70 1/2, you must take two — and pay the resulting double dip of taxes — in the following year”.

Calculating IRA Withdrawal Rules

The amount of each IRA Withdrawal Rules depends on your IRA account balance at the end of the previous year divided by a joint life-expectancy figure for you and your account beneficiary (even if you don’t have one!) found in Miami accounting firms websites. The younger you are, the longer the life-expectancy figure. The longer the life-expectancy figure, the bigger the divisor. And the bigger the divisor, the lower the IRA Withdrawal Rules amount. Of course, lower minimum withdrawals mean lower taxes which, obviously, is good.

The minimum withdrawal rules automatically assume you’ve designated a person 10 years your junior as your IRA beneficiary. Don’t worry, it doesn’t matter to the IRS if your actual designated beneficiary is older than the assumed age. In fact, it generally doesn’t matter if you’ve actually designated a beneficiary or not. This might strike you as odd, but there is some history behind it. (We’ll spare you the titillating details.)

Miami accounting service notes the only exception to the “automatically-10-years-younger-beneficiary rule” is when your spouse is designated as the sole IRA beneficiary and he or she is more than 10 years younger. In this somewhat unusual circumstance, you’re allowed to calculate your IRA minimum withdrawals using more favorable joint life-expectancy figures based on the actual ages of you and your spouse.

Now, how these rules will affect you specifically depends on your age and how much money you have in your IRA. Future post will cover each of the scenarios below that may apply to you:

•You’ll turn 70 1/2 this year

•You turned 70 1/2 last year

•You’re over age 71 1/2, with no designated beneficiary

•You’re over age 71 1/2, with a designated beneficiary

About 

Gustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO – Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.

About the Author

Gustavo VieraGustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO - Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.View all posts by Gustavo Viera →

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