IRAs in your 40s, 50s, 60s, and 70s |
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IRAs in Your 70s
While it's smart to leave as much of your IRA invested as possible, if you have a traditional IRA, the law requires that you begin to take distributions no later than April 1 of the year following the year you reach 70 1/2. If you're still working and participate in your employer's retirement plan, you don't have to start taking minimum withdrawals from that plan until you quit. But you do have to start taking withdrawals from your IRA even if you're still working.
That's not true of the new Roth IRA. There's no mandatory distribution age with the new Roth IRA. You may keep these funds invested as long as you like. You may leave them to your heirs, who may have to pay estate taxes, but like you, they can withdraw these funds free of federal income taxes.
You must continue to take an annual distribution from your traditional IRA each year before December 31. The amount you take each year depends on a complex calculation based on life expectancy and that of your spouse or beneficiary. That calculation, along with important recent changes to distributions rules, are described in IRS Publication 590.
You can base withdrawals on your life expectancy at the time you begin to make withdrawals. Or, you can recalculate your life expectancy each year. At age 70, the IRS says you are likely to live 16 more years, so you would divide your IRA balance by 16 to determine your minimum distribution that first year, by 15 the second year, by 14 the third year, and so on.
Under the second method, you would recalculate your life expectancy each year. As a result, your payments would continue for a longer period and require smaller minimum withdrawals because the longer you live, the longer your life expectancy. For example, at age 80, a single individual is expected to live to 89 1/2. At 90, the individual is projected to live to 95. You must decide which calculation method to use before you begin receiving mandatory distributions and you must stick with that choice. The two different methods also affect how payments to your beneficiaries are determined after your death. Consult your tax advisor to review these differences before making a final decision. Regardless of which method you choose, you can withdraw more than the minimum amount in any given year and pay income taxes on that amount.
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