About IRA Distribution Rules

By Bill Herrfeldt

  • Overview

    When someone reaches 59½ years of age, he can begin making withdrawals from his IRA without penalty. Before reaching that magic age, if he makes withdrawals other than for purchasing a first home, for education or for certain medical expenses, he must pay the amount of income tax due on those funds plus a penalty of 10 percent. From 59½ years of age until he has reached 70/1/2 years of age, withdrawals from his IRAs are optional so long as he begins making withdrawals annually from then on. Otherwise, he will be required to pay an excise tax of 50 percent of the amount of the required withdrawal, one of the stiffest penalty assessed by the IRS. The only exception to this rule involve Roth IRAs that only require that distribution begin no later than upon death.
  • Significance

    It is the responsibility of the taxpayer to know when withdrawals of funds from his IRS must be made. It's not a matter of the IRS not knowing about the existence of a person's IRA. By the rules established in 2002, the annual reconciliation of of ones IRAs are sent by the sponsoring company to both the holder of the IRA and the IRS.
  • Considerations

    Once you reach 70½ years of age, payment of at least the required minimum distribution (RMD) must be made to you each year. The amount that a person is required to withdraw annually is based on her age. And that calculation is based on the value of IRA on December 31 of the previous year. For example, if you were to calculate the RMD for 2009, you would base it on the value of your IRAs on December 31, 2007.


  • Size

    Over your lifetime, multiple IRAs of considerable value may be established. When a taxpayer calculates the amount he must withdraw each year based on his RMD, he is not required to spread that withdrawal evenly among them. As long as he has calculated the correct total amount to be withdrawn, he may do so from any or all of the accounts without regard to their value.
  • Benefits

    Congress waived the RMD for 2009. Most people saw their IRAs lose considerable value during 2008, so their RMD would have been based on assets that no longer are there. And it is still unclear whether Congress will retroactively adjust all RMDs for 2008.
  • Potential

    With defined benefit retirement plans no longer in existence, IRAs have become the most popular way that people use for accumulating funds for retirement. As long as people play by the rules set out by the IRS, particularly as to withdrawals, they will not run afoul of the penalties that the IRS can exact.
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