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Plan Ahead for Taking Required Distributions from Your Traditional IRA

Deferring the tax on your retirement savings is a key benefit of saving in a self-directed Traditional IRA – until you reach age 70½. Once you reach this age, the IRA tax laws require that you begin withdrawing a portion of your IRA contributions and investment earnings each year to ensure these assets enter the tax stream. You don’t have to take it all at once though. You may spread your payments out so that your account balance will last throughout your lifetime.

Timing

You have until April 1 of the year following the year you reach age 70½ to take your first required minimum distribution (RMD). Each subsequent year’s RMD must be distributed by December 31. RMDs do not apply to your Roth IRAs during your lifetime.

Amount

The amount to be distributed each year is calculated by dividing your prior year December 31 account balance by the life expectancy factor for your age in the current year. In most cases, you will use the life expectancy factor from the IRS’s Uniform Lifetime Table, which calculates a joint life expectancy based on your age and a hypothetical beneficiary who is 10 years younger.

This calculation determines the minimum amount that must be distributed for the year, but you may always withdraw more than the minimum required. You may satisfy your RMD with a single payment or multiple payments throughout the year.

Penalty

If you don’t take your RMD each year, you will owe an additional tax equal to 50% of the RMD amount that should have been withdrawn but was left in the self-directed IRA.

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Planning Tips

•  Your RMD will be taxable in the year distributed (excluding any nondeductible contributions or rolled over after-tax amounts). If you wait to take your first RMD between January and April of the year following your 70½ year, be prepared for two taxable distributions in the same year.

•  If the sole beneficiary of your IRA is your spouse, and your spouse is more than 10 years younger than you are, you can calculate RMDs using your actual ages and the IRS’s Joint Life Expectancy Table. This will result in a smaller RMD amount.

•  If you have more than one Traditional, SEP or SIMPLE IRA, you may take your RMD from each account or may add up the RMDs calculated separately for each of your IRAs and take a distribution from any one or combination of IRAs.

•  Roth IRAs, which are funded with after-tax contributions, are not subject to the RMD rules while you’re alive and cannot be used to satisfy RMDs.

•  STRATA will provide account holders with a written notice by January 31 each year if you have an RMD due – including your RMD calculation based on the IRS’s Uniform Life Expectancy Table for your STRATA IRA. You are responsible for making sure the distribution occurs.

•  If you want to estimate your RMDs for retirement income planning purposes, you can find the tables used for these calculations in IRS Publication 590-B, Distributions from Individual Retirement Arrangements ( IRAs) at https://www.irs.gov/forms-pubs/about-publication-590-b

If you have questions about RMDs across different IRA types, including both traditional assets and alternative investments, please contact STRATA, a specialist in alternative asset IRA custody, you may also contact us at 866-928-9394 or Service@StrataTrust.com.

Tags: IRA tax laws, RMD, SEP IRA, Traditional IRA